Main Project (FSM) Mergerts and Aquisition

MERGERS AND ACQUISITIONS
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks. Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company. Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are Horizontal Merger, Vertical Merger, Co-generic Merger and Conglomerate Merger. Merger and acquisition process is the most challenging and most critical one when it comes to corporate restructuring. One wrong decision or one wrong move can actually reverse the effects in an unimaginable manner. It should certainly be followed in a way that a company can gain maximum benefits with the deal. Merger agreement is a contract that comprehensively lists down all details governing the merger of one or more companies. It is a main document that is legally binding on all the parties to the contract. To make it enforceable, the agreement has to be approved by and duly signed by
S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

the authorized parties. It can be cancelled under circumstances where any party fails to comply with the laid down terms and conditions. With a view to facilitating consolidation and emergence of strong entities and providing an avenue for non disruptive exit of weak/unviable entities in the banking sector, it has been decided to frame guidelines to encourage merger/amalgamation in the sector. Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to formulate a scheme with regard to merger and amalgamation of banks, the prior
State Governments have incorporated in their respective Acts a provision for obtaining sanction in writing, of RBI for an order.
India in the recent years has showed tremendous growth in the M&A deal. It has been actively playing in all industrial sectors. It is widely spreading far across the stretches of all industrial verticals and on all business platforms. The increasing volume is witnessed in various sectors like that of finance, pharmaceuticals, telecom, FMCG, industrial development, automotives and metals. Corporate merger and acquisition is defined as the process of buying, selling, and integrating different corporations with the desire of expansion and accelerated growth opportunities. This kind of association in any form plays an integral role when it comes to business and economy as it results in significant restructuring of a business. Companies can enter into various arrangement with its foreign related company to increase their market share and efficiency. However, prior approval of RBI has to be sought. In a merger of a listed company into an unlisted company, the specific provisions under 2013 Act would also have to be considered apart from the securities law regulations
PURPOSE OF THE STUDY:The basic purpose behind the study was to get detailed knowledge about the Mergers and Acquisitions. The study was basically aimed to know more about the Process, RBI Guidelines , Success, Strategies of mergers and acquisitions and also the difference between Mergers And Acquisitions. And also to get knowledge about the Implications Of Companies Act, 2013-Mergers And Restructuring.
OBJECTIVES OF THE STUDY: To study about Mergers and Acquisitions. To study about process of Mergers and Acquisitions. To study about RBI guidelines for Mergers and Acquisitions. To study about success of Mergers and Acquisitions. To study about strategies of Mergers and Acquisitions. To study about the difference between Mergers And Acquisitions. To Study About The Implications Of Companies Act, 2013-Mergers And Restructuring
RESEARCH METHODOLOGY:-
SECONDARY DATA
LIMITATIONS:-
Primary data is not collected.

Find very difficult to collect information on distinguish between Mergers And Acquisitions.
CHAPTER 1: mergers and acquisitions 1.1 INTRODUCTION

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Next time you flip open the newspapers business section, odds are good that at least one headline will announce some kind of M&A transaction. Sure, M&A deals grab headlines the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of whether you should cheer or weep when a company you own buys another company - or is bought by one. You will also be aware of the tax consequences for companies and for investors. WHAT IS MERGER? Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer,

which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of: Equity shares in the transferee company, Debentures in the transferee company, Cash, or A mix of the above modes. WHAT IS ACQUISITION? Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. Methods of Acquisition: An acquisition may be affected by a) Agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power; b) Purchase of shares in open market; c) To make takeover offer to the general body of shareholders; d) Purchase of new shares by private treaty; e) Acquisition of share capital through the following forms of considerations viz. Means of cash, issuance of loan capital, or insurance of share capital.
1.2 HISTORY OF MERGERS AND ACQUISITIONS IN INDIA

The concept of merger and acquisition in India was not popular until the year 1988. During that period a very small percentage of businesses in the country used to come together, mostly into a friendly acquisition with a negotiated deal. The key factor contributing to fewer companies involved in the merger is the regulatory and prohibitory provisions of MRTP Act, 1969. According to this Act, a company or a firm has to follow a pressurized and burdensome procedure to get approval for merger and acquisitions. The year 1988 witnessed one of the oldest business acquisitions or company mergers in India. It is the well-known ineffective unfriendly takeover bid by Swaraj Paul to overpower DCM Ltd. and Escorts Ltd. Further to that many other NonResidents Indians had put in their efforts to take control over various companies through their stock exchange portfolio. Volume is tremendously increasing with an estimated deal of worth more than $ 100 billions in the year 2007. This is known to be two times more than that of 2006 and four times more than that of the deal in 2006. Further to that, the percentage is continuously increasing with high end success in business operations. As for mow the scenario has completely changed with increasing competition and globalization of business. It is believed that at present India has now emerged as one of the top countries entering into merger and acquisitions.
1.3 TYPES OF MERGERS

There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are listed below:
Horizontal Merger
Conglomerate Merger
Types
Vertical Merger
Co-generic Merger
Horizontal Merger:This kind of merger exists between two companies who compete in the same industry segment. The two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits. This kind substantially reduces the number of competitors in the segment and gives a higher edge over competition.

Vertical Merger:Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business. In this form, the companies in merger decide to combine all the operations and productions under one shelter. It is like encompassing all the requirements and products of a single industry segment. Co-Generic Merger:Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies. It includes the extension of the product line or acquiring components that are all the way required in the daily operations. This kind offers great opportunities to businesses as it opens a hue gateway to diversify around a common set of resources and strategic requirements. Conglomerate Merger:Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. All the merged companies are no way related to their kind of business and product line rather their operations overlap that of each other. This is just a unification of businesses from different verticals under one flagship enterprise or firm.
1.4 PURPOSE OF MERGERS & ACQUISITIONS
1.
Procurement of supplies Revamping production facilities Market expansion and strategy
2.
3.
4.
Financial strength General gains

Own developmental plans Strategic purpose Corporate friendliness Desired level of integration
5.
6.
7.
8.
9.
The reflected in the
purpose for an offer
or company for acquiring
another company shall be achieved
corporate objectives. It has to decide the specific objectives to be
through acquisition. The basic purpose of merger or business combination is to achieve faster growth of the corporate business. Faster growth may be had through product improvement and competitive position. Other possible purposes for acquisition are short listed below: 1. Procurement of supplies: a) To safeguard the source of supplies of raw materials or intermediary product.
10

b) To obtain economies of purchase in the form of discount, savings in transportation costs, overhead costs in buying department, etc. c) To share the benefits of suppliers economies by standardizing the materials.
2. Revamping production facilities: a) To achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and resources. b) To standardize product specifications, improvement of quality of product, expanding. c) Market and aiming at consumers satisfaction through strengthening after sale Services. d) To obtain improved production technology and know-how from the offeredcompany. e) To reduce cost, improve quality and produce competitive products to retain and Improve market share.
3. Market expansion and strategy: a) To eliminate competition and protect existing market. b) To obtain a new market outlets in possession of the offeree. c) To obtain new product for diversification or substitution of existing products and to enhance the product range. d) Strengthening retain outlets and sale the goods to rationalize distribution;5.To reduce advertising cost and improve public image of the offeree company;6.Strategic control of patents and copyrights.
4. Financial strength: a) To improve liquidity and have direct access to cash resource. b) To dispose of surplus and outdated assets for cash out of combined enterprise. c) To enhance gearing capacity, borrow on better strength and the greater assets backin. d) To avail tax benefits;5.To improve EPS (Earning Per Share).
5. General gains: a) To improve its own image and attract superior managerial talents to manage itsaffairs.
11

b) To offer better satisfaction to consumers or users of the product.
6. Own developmental plans: a) The purpose of acquisition is developmental plans. b) A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc. c) It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its market position. backed by the offeror companys own
7. Strategic purpose: The Acquirer Company view the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.
8. Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeoversand cultivate situations of collaborations sharing goodwill of each other to achie ve performance heights through business combinations. The combining corporate aim at circular combinations by pursuing this objective.
9. Desired level of integration: Mergers and acquisition are pursued to obtain the desired level of integration between the two combining business houses. Such integration could be operational or financial. This gives birth to conglomerate combinations. The purpose and
12

the requirements of the offer or company go a long way in selecting a suitable partner for merger or acquisition in business combinations.
1.5 BENEFITS OF MERGERS AND ACQUISITIONS

Merger and acquisition has become the most prominent process in the corporate world. The key factor contributing to the explosion of this innovative form of restructuring is the massive number of advantages it offers to the business world. Following are some of the known advantages of merger and acquisition: The very first advantage of M&A is synergy that offers a surplus power that enables enhanced performance and cost efficiency. When two or more companies get together and are supported by each other, the resulting business is sure to gain tremendous profit in terms of financial gains and work performance. Cost efficiency is another beneficial aspect of merger and acquisition. This is because any kind of merger actually improves the purchasing power as there is more negotiation with bulk orders. Apart from that staff reduction also helps a great deal in cutting cost and increasing profit margins of the company. Apart from this increase in volume of production results in reduced cost of production per unit that eventually leads to raised economies of scale. With a merger it is easy to maintain the competitive edge because there are many issues and strategies that can e well understood and acquired by combining the resources and talents of two or more companies. A combination of two companies or two businesses certainly enhances and strengthens the business network by improving market reach. This offers new sales opportunities and new areas to explore the possibility of their business. With all these benefits, a merger and acquisition deal increases the market power of the company which in turn limits the severity of the tough market competition. This enables the
13

merged firm to take advantage of hi-tech technological advancement against obsolescence and price wars.
1.6 PROBLEMS OF MERGERS AND ACQUISITIONS IN INDIA

It's a well known fact that a good number of mergers fail because of various factors including cultural differences and flawed intentions. Most companies when sign an agreement often get a create a bigger picture of their expectations as they believe in pure concept of higher capital gains when two are combining together. This belief is not always true as conditions in the market and economy often rules the operation and functioning of any company. The history of merger and acquisitions have revealed that almost two thirds of the mergers taking place experience failure and feel disappointed on their own terms and pre defined parameters. At times even the motivation driving the mergers can prove to be intangible. There are many factors contributing to the failure and elements that are problems of mergers and acquisition. There are many aspects that should be understood and analyzed before signing an agreement because even one small mistake in taking a decision can completely dump both the companies with an irreversible impact. Some of the prominent issues with regards to failure of M&A are as follows: A flawed intention in terms of unethical motivation or high expectations can eventually lead to failure of the merger. If any company desires high capital gain along with glory and fame irrespective of the corporate strategy defined to fulfill the requirements of the company, the merger fails.
14

Any kind of agreement based completely on the optimistic stock market condition can also lead to failure as stock market is an uncertain entity. In such cases more risks are involved with the prevailing merger. Cultural difference is also a big problem in case of a merger. When two companies from different corporate cultures come together it becomes a really challenging task to integrate the cultures of both the companies. It is certainly difficult to maintain the difference and move ahead for success without any kind of integration.
15
CHAPTER 2: PROCESS OF MERGERS AND ACQUISITIONS

Merger and acquisition process is the most challenging and most critical one when it comes to corporate restructuring. One wrong decision or one wrong move can actually reverse the effects in an unimaginable manner. It should certainly be followed in a way that a company can gain maximum benefits with the deal.
Business Valuation
Proposal Phase
Planning Exit Structuring Business Deal Stage of Integration

Operating the Venture
Following are some of the important steps in the M&A process: 1. Business Valuation:Business valuation or assessment is the first process of merger and acquisition. This step includes examination and evaluation of both the present and future market value of the target company. A thorough research is done on the history of the company with regards to capital gains, organizational structure, market share, distribution channel, corporate culture, specific business strengths, and credibility in the market. There are many other aspects that should be considered to ensure if a proposed company is right or not for a successful merger.
16

2. Proposal Phase:Proposal phase is a phase in which the company sends a proposal for a merger or an acquisition with complete details of the deal including the strategies, amount, and the commitments. Most of the time, this proposal is send through a non-binding offer document. 3. Planning Exit:When any company decides to sell its operations, it has to undergo the stage of exit planning. The company has to take firm decision as to when and how to make the exit in an organized and profitable manner. In the process the management has to evaluate all financial and other business issues like taking a decision of full sale or partial sale along with evaluating on various options of reinvestments. 4. Structuring Business Deal:After finalizing the merger and the exit plans, the new entity or the take over company has to take initiatives for marketing and create innovative strategies to enhance business and its credibility. The entire phase emphasize on structuring of the business deal. 5. Stage of Integration:This stage includes both the company coming together with their own parameters. It includes the entire process of preparing the document, signing the agreement, and negotiating the deal. It also defines the parameters of the future relationship between the two. 6. Operating the Venture:After signing the agreement and entering into the venture, it is equally important to operate the venture. This operation is attributed to meet the said and pre-defined expectations of all the companies involved in the process. The M&A transaction after the deal include all the essential measures and activities that work to fulfill the requirements and desires of the companies involved.
17
CHAPtER 3: MERGER AGREEMENT

Merger agreement is a contract that comprehensively lists down all details governing the merger of one or more companies. It is a main document that is legally binding on all the parties to the contract. To make it enforceable, the agreement has to be approved by and duly signed by the authorized parties. It can be cancelled under
circumstances where any party fails to comply with the laid down terms and conditions. The agreement should take into account all possibilities and lay down the plan of action for the same. The legal terminology should be correctly and carefully used. Moreover, any spelling mistake in the names can nullify the contract. A number of formats are easily available for drafting a merger agreement. But due to the level of complexity and accountability involved, they are normally drafted by law firms for their clients. Some of the important components of the agreement are:
Agreement date
Names of the merging parties

Type of industry Type of sector Jurisdiction
S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION 18

Agreement date - It is the date on which the agreement became enforceable. Names of the merging parties - Complete names of all the companies merging their business. Type of industry - It refers to the industry in which the merger is taking place. For instance, merger of two drug-making companies belong to the industry Biotechnology & Drugs. Type of sector - In the above example, the sector is Healthcare. Jurisdiction - It is important to identify the laws governing the jurisdiction. Other important details like members of the management, valuation of shares, liability of the members, valuation of tangible assets, etc.
19
CHAPTER 4: RBI Guidelines on Mergers & Acquisitions of Banks
With
view
to
facilitating
consolidation
and
emergence
of
strong
entities
and providing an avenue for non disruptive exit of weak/unviable entities in the banking sect or, it has been decided to frame guidelines to encourage merger/amalgamation in the sector. Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to formulate a scheme with regard to merger and amalgamation of banks, the State Governments have incorporated in their respective Acts a provision for obtaining prior sanction in writing, of RBI for an order. The request for merger can emanate from banks registered under the same State Act or from banks registered under the Multi State Co-operative Societies Act(Central Act) for takeover of a banks registered under the State Act. While the State Acts specifically provide for merger of co-operative societies registered under them, the position with regard to take over of a co-operative bank registered under the State Act by a co-operative bank registered under the CENTRAL. Although there are no specific provisions in the State Acts or the Central Act for the merger of a co-operative under the State Acts with that under the Central Act, it is felt that if all concerned including administrators of the concerned Acts are agreeable to order merger/ amalgamation, RBI may consider proposals on merits leaving the question of compliance with relevant statutes to the administrators of the Acts.
20
CHAPTER 5: MERGERS AND ACQUISITIONS 5.1 MERGERS AND ACQUISITIONS IN INDIA

India in the recent years has showed tremendous growth in the M&A deal. It has been actively playing in all industrial sectors. It is widely spreading far across the stretches of all industrial verticals and on all business platforms. The increasing volume is witnessed in various sectors like that of finance, pharmaceuticals, telecom, FMCG, industrial development, automotives and metals. The volume of M&A transactions in India has apparently increased to about 67.2 billion USD in 2010 from 21.3 billion USD in 2009. At present the industry is witnessing a whopping 270% increase in M&A deal in the first quarter of the financial year. This increasing percentage is mainly attributed to the increasing cross-border M&A transactions. Over that increasing interest of foreign companies in Indian companies has given a tremendous push to such transactions. Large Indian companies are going through a phase of growth as all are exploring growth potential in foreign markets and on the other end even international companies is targeting Indian companies for growth and expansion. Some of the major factors resulting in this sudden growth of merger and acquisition deal in India are favorable government policies, excess of capital flow, economic stability, corporate investments, and dynamic attitude of Indian companies. The recent merger and acquisition 2011 made by Indian companies worldwide are those of Tata Steel acquiring Corus Group plc, UK based company with a deal of US $12,000 million and Hindalco acquiring Novelis from Canada for US $6,000 million. With these major mergers and many more on the annual chart, M&A services India is taking a revolutionary form. Creating a niche on all platforms of corporate businesses, merger and acquisition in India is constantly rising with edge over competition.
21
5.2 BANK MERGERS AND ACQUISITIONS
Mergers and acquisitions in the banking sector is a common phenomenon across the world. The primary objective behind this move is to attain growth at the strategic level in terms of size and customer base. This, in turn, increases the credit-creation capacity of the merged bank tremendously. Small banks fearing aggressive acquisition by a large bank sometimes enter into a merger to increase their market share and protect themselves from the possible acquisition. Banks also prefer mergers and acquisitions to reap the benefits of economies of scale through reduction of costs and maximization of both economic and non-economic benefits. This is a vertical type of merger because all banks are in the same line of business of collecting and mobilizing funds. In some instances, other financial institutions prefer merging with a bank in case they provide a similar type of banking service. Another important factor is the elimination of competition between the banks. This way considerable amount of funds earlier used for sustaining competition can be channelized to grow the banking business. Sometimes, a bank with a large bad debt portfolio and poor revenue will merge itself with another bank to seek support for survival. However, such types of mergers are accompanied with retrenchment and a drastic change in the organizational structure. Consolidating the business also makes the bank robust enough to sustain in the everychanging business environment. They find it easier to adapt themselves quickly and grow in the domestic and international financial markets.
22
5.3 CORPORATE MERGERS AND ACQUISITIONS
Corporate merger and acquisition is defined as the process of buying, selling, and integrating different corporations with the desire of expansion and accelerated growth opportunities. This kind of association in any form plays an integral role when it comes to business and economy as it results in significant restructuring of a business. The key objective of corporate mergers and acquisitions is to increase market competition. This can be done in various ways using different methods of merger like horizontal merger, conglomeration merger, market extension merger, and product extension merger. All the types work towards a common goal but behold different characteristics suited to get the best outcome in terms of growth, expansion, and financial performance. In many significant ways, this kind of restructuring a business proves to be beneficial to the corporate world. It greatly helps to share all resources, skills, talents, and knowledge that eventually increases the wisdom bar within the company. This can further help to combat the competitive challenges existing in the market. Further to that, elimination of duplicate departments, possibility of cross selling, reduction of tax liability, and exchange of resources are other big time benefits of corporate merger and acquisition. This not only helps to cut the extra cost involved in the operation and gain financial gains but also help to expand across boundaries and enhance credibility. This in the long run help increase revenue and market share, fulfillment of the only desire that drives the growth of M&A.
23
5.4 RECENT MERGERS AND ACQUISITIONS

Global M&A is one of the most happening and fundamental element of corporate strategy in today's world. Many companies around the world have merged with each other with a motive to expand their businesses and enhance revenue. In the span of few years there are many companies coming together for betterment across the globe. Recent mergers and acquisitions 2011 are Lipton Rosen & Katz in New York, Sullivan & Cromwell LLP in New York, Slaughter & May in London, Mallesons Stephen Jaques in Sydney, and Osler Hoskin & Harcourt LLP in Toronto. Even in India merger and acquisition has become a fashion today with a cut throat competition in the international market. There are domestic deals like Penta homes acquiring Agro Dutch Industries, ACC taking over Encore Cement and Addictive, Dalmia Cement acquiring Orissa Cement, Edelweiss Capital acquiring Anagram Capital. All these are recent merger and acquisition 2010 valued at about USD 2.16 billion. Apart from these there are other successful mergers in India as follows: Tata Chemicals took over British salt based in UK with a deal of US $ 13 billion. This is one of the most successful recent mergers and acquisitions 2010 that made Tata even more powerful with a strong access to British Salt's facilities that are known to produce about 800,000 tons of pure white salt annually. Merger of Reliance Power and Reliance Natural Resources with a deal of US $11 billion is another biggest deal in the Indian industry. This merger between the two made it convenient and easy for the Reliance power to handle all its power projects as it now enjoys easy availability of natural gas. Airtel acquired Zain in Africa with an amount of US $ 10.7 billion to set new benchmarks in the telecom industry. Zain is known to be the third largest player in Africa and being acquired by Airtel it is deliberately increasing its base in the international market.
24

ICICI Bank's acquisition of Bank of Rajasthan at aout Rs 3000 Crore is a greta move by ICICI to enhance its market share across the Indian boundaries especially in northern and western regions. Fortis Healthcare acquired Hong Kong's Quality Healthcare Asia Ltd for around Rs 882 Crore and is now on move to acquire the largest dental service provider in Australia, the Dental Corp at about Rs 450 Crore.
25
5.5 SUCCESS OF MERGERS AND ACQUISITIONS

Mergers & Acquisitions have become a common strategy to consolidate business. The basic aim is to reduce cost, reap the benefits of economies of scale and at the same time expand market share. For many people, mergers simply mean sharing resources and costs to increase
bottomlines. However, it is not as simple as it sounds. According to statistical reports, more than 64% of the times the mergers fail to accomplish the promised results. They suffer from a decline in the shareholders' wealth and conflicts in management. Therefore, a success of any merger initiative primarily depends upon the objective behind the need for a merger. Following globalization, many small organizations hastily got into mergers to stand against highly-competitive, large scale multinational corporations. They took mergers as a protective strategy to save their business from being perished in the newly created dynamic environment. Unfortunately, in many cases, it did not work due to lack of proper planning and implementation of the planned merger. Moreover, the high costs of business consolidation (professional fees of bankers, lawyers, advisors, paperwork, etc.) could not be covered by the combined revenue of the merged organization leading to its failure. Another reason for an unsuccessful merger is the lack of efficient management to unite different organizational cultures. The most challenging task is to bring together people and make them work as a team. Establishing a new organizational structure that fits all the employees is also difficult. Hence, many fearing retrenchment resign leading to a complete break-down at the operational level.
26
5.6 STRATEGIES OF MERGERS AND ACQUISITIONS

Strategies play an integral role when it comes to merger and acquisition. A sound strategic decision and procedure is very important to ensure success and fulfilling of expected desires. Every company has different cultures and follows different strategies to define their merger. Some take experience from the past associations, some take lessons from the associations of their known businesses, and some hear their own voice and move ahead without wise evaluation and examination. Following are some of the most essential strategies of merger and acquisition that can work wonders in the process: The first and foremost thing is to determine business plan drivers. It is very important to convert business strategies to set of drivers or a source of motivation to help the merger succeed in all possible ways. There should be a strong understanding of the intended business market, market share, and the technological requirements and geographic location of the business. The company should also understand and evaluate all the risks involved and the relative impact on the business. Then there is an important need to assess the market by deciding the growth factors through future market opportunities, recent trends, and customer's feedback. The integration process should be taken in line with consent of the management from both the companies venturing into the merger. Restructuring plans and future parameters should be decided with exchange of information and knowledge from both ends. This involves considering the work culture, employee selection, and the working environment as well. At the end, ensure that all those involved in the merger including management of the merger companies, stakeholders, board members, and investors agree on the defined strategies. Once approved, the merger can be taken forward to finalizing a deal.
27
CHAPTER 6 : Implications of Companies Act, 2013Mergers and Restructuring
6.1 The Companies Act, 2013: An overview

The Companies Act, 2013 (2013 Act), enacted on 29 August, 2013 on accord of Honble Presidents assent, has the potential to be a historic milestone, as it aims to improve corporate governance, simplify regulations, enhance the interests of minority investors and for the first time legislates the role of whistle-blowers. The new law will replace the nearly 60 year old Companies Act, 1956 (1956 Act). The 2013 Act provides an opportunity to catch up and make our corporate regulations more contemporary, as also potentially to make our corporate regulatory framework a model to emulate for other economies with similar characteristics. The 2013 Act is more of a rule-based legislation containing only 470 sections, which means that the substantial part of the legislation will be in the form of rules. There are over 180+ sections in the 2013 Act where rules are being prescribed and the first set of draft rules (16 chapters released) for 2013 Act are currently available for public comments. It is widely expected that the 2013 Act and indeed the rules will provide for phased implementation of the provisions. The 2013 Act contains a number of provisions which have implications on Mergers and Restructurings. In this bulletin we analyse some of the key provisions and also identified certain action steps and challenges associated with the implementation of these provisions for companies to consider. "There are some pragmatic reforms such as: fast-track schemes, which being cost and time effective will encourage corporate restructurings for small and group companies; merger of an Indian company into a foreign company should give impetus to cross-border M&A activity; introducing the threshold for raising objections to a scheme would deter frivolous objections and postal ballot approval would ensure a wider participation of the stakeholders. However, multiauthority appraisal of the restructuring scheme in the 2013 Act may be a dampener, considering that the present framework envisages a single-window clearance. -By Pallavi J Bakhru
28
6.2 Notice of meeting

The 2013 Act, requires that notice of meeting for approval of the scheme of compromise or arrangement along with other documents shall be sent to various other regulatory authorities in addition to Central Government such as: Income Tax authorities Reserve Bank Of India SEBI The Registrar The Stock Exchanges The official liquidator The Competition Commission of India, if necessary Other sector regulators or authorities which are likely to be affected by the compromise or arrangement The existing simple procedure of submitting documents with Court will become multi-party with the inclusion of various regulatory authorities. It will increase the paperwork and the process may become more cumbersome with the direct involvement of other regulatory authorities.
6.3 Treasury shares

The 2013 Act specifically stipulates that any intercompany investment would have to be cancelled in a scheme and holding shares in the name of transferee through a trust would not be allowed. The 2013 Act will abolish the practice of companies to hold their own shares through a trust, which could provide them liquidity in future, while still allowing the promoters to retain a controlling stake over the company.
6.4 Approval of scheme through postal ballot

Under the 1956 Act, scheme of compromise / arrangement needs to be approved by majority representing 3/4th in value of the creditors and members or class thereof present and voting in person or by proxy.
29

The 2013 Act additionally allows the approval of the scheme by postal ballot. This will involve wider participation of the shareholders of the company in voting and will protect shareholders interest.
6.5 Valuation certificate

The 1956 Act does not mandate disclosing the valuation report to the shareholders. Though in practice, valuation reports are included in documents shared with the shareholders and also to the Court as part of the appraisal process of the scheme by the Courts. The 2013 Act now mandatorily requires the scheme to contain the valuation certificate. The valuation report also needs to be annexed to the notice for meetings for approval of the scheme. This will enable the shareholders to understand the business rationale of the transaction and take an informed decision. The valuation report obtained by the company should be robust as the same will now have to stand scrutiny of various stakeholders.
6.6 Compliance with accounting standards

The 2013 Act has introduced a new requirement, that no scheme of compromise or arrangement, whether for listed company or unlisted company shall be sanctioned unless the companys auditor has given a certificate that the accounting treatment of the proposed scheme is in conformity with the prescribed accounting standards. Further, the application with respect to reduction of share capital has to be sent to the Tribunal along with the auditors certificate stating it is in compliance with accounting standards. The 2013 Act aligns the SEBI requirement which existed for listed companies for all companies, to ensure that the scheme aimed to use innovative accounting treatments for financial remodeling are not sanctioned by the Courts. As the scheme tends to have overriding effect with respect to accounting treatment (specifically mentioned in accounting standard 14 with respect to treatment of reserves), the onus has been shifted on the auditor to confirm that accounting standards have been followed.
30
6.7 Objection to compromise or arrangement

Under the 1956 Act, any shareholder, creditor or other interested person can object to the scheme of compromise or arrangement before a court if such persons interests are adversely affected. The 2013 Act states that the objection to compromise or arrangement can be made only by persons: Holding not less than 10% of shareholding or; Having debt amounting not less than 5 % of the total debt as per latest audited financial statements
The new threshold limit for raising objections in regard to scheme or arrangement will protect the scheme from small shareholders and creditors frivolous litigation and objection.
6.8 Merger or amalgamation of company with foreign company

The 1956 Act does not contain provisions for merger of Indian company into a foreign company (transferee company has to be an Indian company). The 2013 Act states that merger between Indian companies and companies in notified foreign jurisdiction shall also be governed by the same provisions of the 2013 Act. Prior approval of Reserve Bank of India would be required and the consideration for the merger can be in the form of cash and or of depository receipts or both. The 2013 Act will provide an opportunity of growth and expansion to Indian Company by permitting amalgamation with foreign company or vice versa. This will provide opportunity to form corporate strategies on a global scale. It has to be seen if the implementation mechanism is smooth enough. The 2013 Act suggests that all cross border merger will now be governed by the said chapter. Presently, its possible for a foreign company of any jurisdiction to merge into an Indian company. This may now be limited to only companies in notified jurisdiction.
31
6.9 Merger of a listed company into unlisted company

The 2013 Act requires that in case of merger between a listed transferor company and an unlisted transferee company, transferee company would continue to be unlisted until it becomes listed. Further, the 2013 Act also proposes that transferee company would have to provide an exit opportunity. Listing or delisting regulations, as applicable, under securities laws would still have to be considered. Further, it seems that exit opportunity may have to be provided whether or not the transferor company chooses to list.
6.10 Fast-track merger

Under the 1956 Act, all mergers and amalgamations require court approval. The 2013 Act requires that mergers and amalgamations between two or more small companies or between holding companies and its wholly-owned subsidiary (or between such companies as may be prescribed) does not require court approval. However, notice has to be issued to ROC and official liquidator and objections / suggestions has to be placed before the members. The scheme needs to be approved by members holding at least 90 percent of the total number of shares or by creditors representing nine-tenths in value of the creditors or class of creditors of respective companies. Once the scheme is approved, notice would have to be given to the Central Government, ROC and Official Liquidator. This will reduce the time consumed in court proceedings and will result in faster disposal of the matter. It will help remove the bureaucratic barriers involved in court proceedings and in turn simplify the process. Presently, it seems that in such fast-track mergers, there is also no requirement for sending notices to RBI or income-tax or providing a valuation report or providing auditor certificate for complying with the accounting standard. The 2013 Act does not specify transitional provisions relating to restructuring in progress and presently there is a lack of clarity in this regard.
32
CHAPTER 7 : DIFFERENCE BETWEEN MERGERS AND ACQUISITIONS

Merger and acquisition is often known to be a single terminology defined as a process of combining two or more companies together. The fact remains that the so-called single terminologies are different terms used under different situations. Though there is a thin line difference between the two but the impact of the kind of completely different in both the cases. Merger is considered to be a process when two or more companies come together to expand their business operations. In such a case the deal gets finalized on friendly terms and both the companies share equal profits in the newly created entity. When one company takes over the other and rules all its business operations, it is known as acquisitions. In this process of restructuring, one company overpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two, the one that is financially stronger and bigger in all ways establishes it power. The combined operations then run under the name of the powerful entity who also takes over the existing stocks of the other company. Another difference is, in an acquisition usually two companies of different sizes come together to combat the challenges of downturn and in a merger two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers. A deal in case of an acquisition is often done in an unfriendly manner, it is more or less a forceful or a helpless association where the powerful company either swallows the operation or a company in loss is forced to sell its entity. In case of a merger there is a friendly association where both the partners hold the same percentage of ownership and equal profit share.
33
CHAPTER 8 : Nokia Acquisition
Introduction Nokia being the largest manufacturer of mobile phones in the world with a share of 39% of all the mobile phones across the world in the year 2009 has acquired many organisations to continue to be the leader in the market. Nokia has global revenue of 37.2 billion GBP annually with an operating profit of 1 billion GBP globally (Nokia, 2010). Major Acquisition by Nokia The major acquisition done by Nokia to date is the acquisition of the Navteq, a United States based company. Nokia has paid 5.3 billion GBP for this acquisition which is a huge amount. Navteq is a major provider of GIS (geographical Information Systems) accounting to a market share of 85% and has many clients such as BMW, Mercedes Benz etc.,(Nokia acquisitions, 2008). Purpose of this Acquisition The main purpose of this major acquisition done by Nokia is to be the leader in the mobile communications sector providing the consumers with the advantage of GPS on their Nokia mobile devices. There were many problems in this acquisition as the entire value of Navteq is a mere 398 million GBP at the time of acquisition (High beam, 2008). Paying a huge
34

amount to navteq was considered a high risk by many analysts. However, some analysts support this acquisition by saying that as navteq has a high growth profile, and as Nokia has already got a broken business model in the Navigation sector due to the available free services from companies like Google and other organisations. Disadvantages due to the Acquisition Taking in to consideration the acquisition, the shares of nokia was driven down by 2% as soon as this deal was finalised (High beam, 2008). This was considerably a big blow to nokia. However, nokia continued with the acquisition as it believed that this small price can drive the GPS business to greater heights. Nokia then planned to provide location based services to its users with the help of navteq.
35
chapter 9 : CONCLUSION
Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. There are alternatives to growth by acquisition. It is sometimes argued that as markets become more global mergers are required to allow companies to be large enough to compete. For example, telecommunications companies need to be very large to support the required research and development overhead. Other industries have, however, found ways round this problem. Joint ventures in the car industry between Honda/BL and Ford/Mazda are examples of alternatives to merger
36
Recommendation
Not all mergers are failures; some in fact are very successful. On average, however, research shows that expansion based on merger and takeover seems to bring few value gains to acquiring company shareholders. Mergers, however, are often in the interests of managers. They view success in a different light from shareholders and are often more concerned with the job security and career prospects brought by sheer size. M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals. The companies have to look for other option to retain control and to maintain liquidity as post-merger all the intercompany investment will be cancelled and no further shares will be issued in lieu of the intercompany investment. In a merger of a listed company into an unlisted company, the specific provisions under 2013 Act would also have to be considered apart from the securities law regulations. Companies can enter into various arrangement with its foreign related company to increase their market share and efficiency. However, prior approval of RBI has to be sought.
37
BIBLIOGRAPHY
BOOKS: Indian Banking in New Millennium - G.V.R Manian
Banking Development In India -Niti Bhasin
Banking Theory and Practice - K.C. Shekhar and Lekshmy Shekhar
Mergers & Takeover Functioning and Reforms - Amit Bhasak
WEBSITES:
www.indiatimes.com en.wikipedia.org/wiki/mergers and acquisition. http://www.theguardian.com/business/mergers-andacquisitions http://gtw3.grantthornton.in/assets/Companies_ActMergers_and_restructuring.pdf
38

Main Project (FSM) Mergerts and Aquisition

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Main Project (FSM) Mergerts and Aquisition

Uploaded by

Copyright:

Available Formats

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

Primary data is not collected.

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

CHAPTER 1: mergers and acquisitions 1.1 INTRODUCTION

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

1.2 HISTORY OF MERGERS AND ACQUISITIONS IN INDIA

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

1.3 TYPES OF MERGERS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

1.4 PURPOSE OF MERGERS & ACQUISITIONS

Procurement of supplies Revamping production facilities Market expansion and strategy

Financial strength General gains

The reflected in the

purpose for an offer

or company for acquiring

another company shall be achieved

corporate objectives. It has to decide the specific objectives to be

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

1.5 BENEFITS OF MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

1.6 PROBLEMS OF MERGERS AND ACQUISITIONS IN INDIA

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

CHAPTER 2: PROCESS OF MERGERS AND ACQUISITIONS

Planning Exit Structuring Business Deal Stage of Integration

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

CHAPtER 3: MERGER AGREEMENT

Names of the merging parties

MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

CHAPTER 4: RBI Guidelines on Mergers & Acquisitions of Banks

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

CHAPTER 5: MERGERS AND ACQUISITIONS 5.1 MERGERS AND ACQUISITIONS IN INDIA

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION

MERGERS AND ACQUISITIONS

5.2 BANK MERGERS AND ACQUISITIONS