Chapter :-1

Introduction

[1]

1. INTRODUCTION
We have been learning about the companies coming together to from another
company and companies taking over the existing companies to expand their
business. With recession taking toll of many Indian business and the feelings of
insecurity surging over our businessmen, it is not surprising when we hear about the
immense numbers of corporate restructuring taking place, especially in the last
couple of years. Several companies have been taken over and several have
undergone internal restructuring, whereas certain companies in the same field
of business have found it beneficial to merge together into one company.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs,
tender offers, & other forms of corporate restructuring. Thus important issues
both for business decision and public policy formulation have been raised. No
firm is regarded safe from a takeover possibility. On the more positives idea Mergers
& Acquisitions may be critical for the healthy expansion and growth of the firm.
Successful entry into new product and geographical markets may require Mergers &
Acquisitions at some stage in the firms development. Successful competition in
international markets may depend on capabilities obtained in a timely and efficient
fashion through Mergers and Acquisitions.

To opt for a merger or not is a complex affair, especially in terms of the technicalities
involved. We have discussed almost all factors that the management may have to
look into before going for merger.

[2]

Considerable amount of brainstorming would be required by the managements to

reach a conclusion. E.g. A due diligence report would clearly identify the status of
the company in respect of the financial position along with the net worth and pending
legal matters and details about various contingent liabilities.
Decision has to be taken after having discussed the pros & cons of the proposed
merger & the impact of the same on the business, administrative costs benefits,
addition to shareholders value, tax implications including stamp duty and last but
not the least also on the employees of the Transferor or Transferee Company.

[3]

Objective of study:The objectives of this project were mainly to study the merger and acquisition,
customer relation, their profit making techniques of company, but there are some
more and they are The main purpose of our study is to render a better understanding of the
concept merger and acquisition
To understand the planning and management of merger and acquisition.
To understanding the process of merger and evaluating process of
merger.
To understanding the what are the benefit to company after adopting
merger and acquisition concept.

[4]

Scope of study:As merger is a combination of two or more cos into an existing co or a new
co. Acquired co. transfer its assets, liabilities and shares to the acquiring
company for cash or exchange of shares. Need for Merger and Acquisition
arises because in general, a merger can facilitate the ability of two or more
competitors to exercise market power interdependently, through an explicit
agreement or arrangement, or through other forms of behaviour that permits
firms implicitly to coordinate their conduct. It will be found to be likely to
prevent or lessen competition substantially when the parties to the merger
would like to be in a position to exercise a materially greater degree of market
power in a substantial part of a market for two years or more, than if the
merger did not proceed in whole or in part. In short, a company can achieve its
growth objective by:
Expanding its existing markets
Entering in new markets
A company can expand internally or externally. If internally there is a problem
due to lack of resources and managerial skill it can to the same externally
through mergers and acquisitions. This helps a company to grow at a faster
pace in a convinent and inexpensive way. Combination of companies may
result in more than the average profitability due to reduction in cost and
effective utilization of resources.

[5]

Research methodology:Secondary data

The mechanism involved in secondary data collection, mainly borrowing through
adequate journal (related to merger and acquisition), web portals, books, white
papers.
This research has been conducted with the help of secondary data as follow :
Different websites like Google , yahoo etc
This data was gathered through the companys websites, its corporate
intranet , adidas and reebok annual report.
Also, various text books on financial management like Khan & Jain,
Prasanna Chandra were consulted to equip ourselves with the topic .

[6]

Chapter no:-2
Review of Literature

[7]

Review of Literature: American Tower Corporation looks at mergers and acquisitions to boost
presence in India
October 2, 2014 | Danish Khan , ET Bureau
NEW DELHI: American Tower Corporation (ATC) is betting on the need for more
telecom towers in India as the country's data consumption surges and 4G is adopted
widely even as the Boston- based company looks at mergers and acquisitions to
grow its presence, its top official in the region said. Telecom operators such as
Bharti-Airtel, Vodafone India and Idea Cellular are focusing on upgrading their
existing sites to support growing.
India's M&A deal stands at $32.6 billion during January-August: Grant
Thornton
September 18, 2014 | PTI
NEW DELHI: The month of August saw overall private equity deal activity worth $1.6
billion, taking the year-to-date value of transactions in the country to $32.6 billion,
indicating this year will end with much better number in terms of mergers and
acquisitions. According to assurance, tax and advisory firm Grant Thornton, the
overall deal sentiment in India has remained consistently high from second quarter
of 2014.
Competition Commission of India eases merger and acquisition rules
May 12, 2011
NEW DELHI: India's competition regulator on Wednesday announced the
regulations for mergers and acquisitions, diluting several of its earlier proposals to
address industry concerns that the competition law was intrusive and burdensome.
The new rules exempt a host of transactions from the scrutiny of the Competition
Commission of India (CCI) and seek much lower merger notification fees than
proposed earlier. "We have exempted routine merger and acquisition.

[8]

Chapter no:3
Theoretical aspects of project

[9]

 WHAT IS MERGER ?
Merger is defined as combination of two or more companies into a single company
where one survive and the others lose their corporate existence. The survivor
acquires all the assets as well as liabilities of the merged company or companies.
Merger is a combination of two or more companies into one company.
In India, we call mergers as amalgamations, in legal parlance. The acquiring
company, (also referred to as the amalgamated company or the merged company)
acquires the assets and the liabilities of the target company (or amalgamating
company). Typically, shareholders of the amalgamating company get shares of the
amalgamated company in exchange for their existing shares in the target company.
Merger may involve absorption or consolidation.

A MERGER happens when two firms, often about same size, agree to go forward
as a new single company rather than remain separately owned & operated by
pooling all their resources together, to create a sustainable competitive
advantage. For example , both Daimler-Benz & Chrysler ceased to exist when two
firms merged, and a new company Daimler-Chrysler was created.
Generally, he surviving company is the buyer, which retains its identify, 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
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?
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 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. When a Company takes over another one & clearly becomes the
new owner, the purchase is called ACQUISITION. Unlike mergers,
acquisitions can sometimes be unfriendly. i.e., when a firm tries to takeover
another by adopting hostile measures.
Acquisition is nothing but takeover, is the buying one company by another company.
An acquisition or takeover is the purchase of one business or company by another
company or other business entity. Such purchase may be of 100%, or nearly 100%,
of the assets or ownership equity of the acquired entity. Consolidation occurs when
two companies combine together to form a new enterprise altogether, and neither of
the previous companies remains independently. Acquisitions are divided into
"private" and "public" acquisitions, depending on whether the acquire or merging
company (also termed a target ) is or is not listed on a public stock market . An
additional dimension or categorization consists of whether an acquisition is friendly
or hostile .

Methods of Acquisition:
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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.

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Merger process:-

Defining the corporate strategy

Implementation the corporate strategy

Target identification

Valuation of merger

Merger implementation

Post-merger integration
1) Defining the Corporate Strategy: A firm needs to first clearly define its
corporate strategy- what business the firm is currently ? What business it
intends to be in ? How does it wish to grow, and be known as?
2) Implementing the Corporate Strategy: Next, the firm should define a route
or roadmap to implement its corporate strategy - whether it intends to use
mergers or joint ventures/strategic alliances, or internal development as a
strategy for its growth/diversification plan.
3) Target Identification: If the firm finds it attractive to pursue the M&A route,
sufficient effort should be devoted to identification of the right kind of a target
firm to merge/acquire. The parameters for identification should include the
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financial considerations, business strengths and weakness, the specific

resources, etc.
4) Valuation of the Merger: Then, a financial valuation of the merger should
begin. The specific cost and the premium that the firm would like to pay for
acquiring share/management control of the target firm would again depend on
the projected synergies that the merger is likely to bring about.
5) Merger Implementation: The tax, regulatory, and market issues dominate the
next stage of the merger process the merger implementation. In this stage,
when the merger is begin implemented, depending on the local laws,
conditions, and shareholder prederences, the merger could happen through a
stock swap, a cash offer, or any other method.
6) Post Merger Integration: The final stage called the post merger
integration includes activities like asset stripping (selling off those assets in the
target company that are not likely to add value to the merged/acquired firm);
efforts at improving the operating efficiency and setting up managerial systems
at the acquired firm.

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Acquisition process:The following is the acquisition process:

Manage the pre-acquisition phase

Screen candidates

Evaluate the remaining candidates

Determine the mode of acquisition

Negotiate and consummate the deal

Manage the post-acquisition integration

1) Manage the Pre-acquisition Phase: A good starting point of a merger and
acquisition programme for an acquiring company is to institute a thorough
valuation of the company itself. This will enable the acquiring company to
understand well its strengths and weakness, and deepen the acquirers insights
into the structure of its industry.
2) Screen Candidates: The ideas generated in the brainstorming
sessions and the suggestions received from various quarters will have
to be filtered. Screening criteria that make sense for the acquiring
companys perspective need to be used.

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3) Evaluation the Remaining Candidates: The screening criteria

applied in step 2 will narrow down the list of candidates to a fairly small
number.

Each

of

them

should

be

examined

thoroughly.

comprehensive evaluation must cover in great detail the following

aspects:

operations,

plant

facilities,

distribution

network,

sales,

personnel, and finances. Special attention should be paid to the quality

of management.
4) Determine the Mode of Acquisition: The three major modes of
acquisition are merger, purchase of assets, and takeover. In addition,
one may look at leasing a facility or entering into a management
contract.
5) Negotiate and Consummate the Deal: for successful negotiation,
the acquiring firm should know how valuable the acquisition candidate
is to the firm, to the present owner, and to other potential acquirers.
6) Manage the Post-acquisition Integration: Generally after the
acquisition the new controlling group tends to be much more ambitious
and is inclined to assume a higher degree of risk.

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 Takeover:
A takeover is acquisition and both the terms are used inter changeably. Takeover
differs from merger in approach to business combinations i.e. The process of
takeover, transaction involved in takeover, determination of share exchange or cash
price and the fulfillment of goals of combination all are different in takeovers than in
mergers. For example, process of takeover is unilateral and the offer or
company decides about the maximum price.

Time taken in completion of transaction is less in takeover than in mergers, top

management of the offer company being more co-operative.

Kinds of takeovers:
Negotiated or Friendly Takeover
The existing management of a company decides to give away the control of the
company to another group on terms and conditions mutually agreed upon by both
the parties.
Open market or Hostile Takeover
A group acquires shares of a company from the open market in order to take
control of the company
Bail-out Takeover
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When a financially sick company is taken over by a profit earning company in

order to bail out the form ,it is called a bail-out takeover.

Hostile Takeover Strategies: Tender Offer

General offer made publicly and directly to a firms shareholders to buy their stock
at a price well above the current market price.
Street Sweep
The acquirer accumulates large amounts of the stocks in the target company
before making the open offer
Bear Hug
The acquirer tries to put pressure on the management of the target firm by
threatening to make an open offer
Strategic Alliance
An acquirer offers a partnership rather than a buyout of the target firm.
Brand Power
The acquiring firm enters into an alliance with other powerful brands to
displace the competitors brand.

Issues in takeover: Economic Issues

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 Legal Issues
Public Policy Issues
Powers of financial institutions
Proxy wars

Effects of Takeovers: Effects on the Acquirer Company

Effects on the Target company
Effects on the Shareholders of the Target Company
Effects on the Shareholders of Acquiring Company

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PURPOSE OF THE MERGER AND ACQUISITION

The purpose for an offer or company for acquiring another company shall be
reflected in the corporate objectives. It has to decide the specific objectives to be
achieved 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:

To safeguard the source of supplies of raw materials or intermediary product;
To obtain economies of purchase in the form of discount,
savings in transportation costs, overhead costs in buying department, etc.;
To share the benefits of suppliers economies by standardizing the materials.

(2) Revamping production facilities:

To achieve economies of scale by amalgamating production facilities through
more intensive utilization of plant and resources;
To standardize product specifications, improvement of quality of product,
expanding Market and aiming at consumers satisfaction through strengthening
after sale Services;
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 To obtain improved production technology and know-how from the offered

company
To reduce cost, improve quality and produce competitive products to retain
and Improve market share.

(3) Market expansion and strategy:

To eliminate competition and protect existing market;
To obtain a new market outlets in possession of the offeree;
To obtain new product for diversification or substitution of existing products
and to enhance the product range;
Strengthening retain outlets and sale the goods to rationalize distribution;
To reduce advertising cost and improve public image of the company;
Strategic control of patents and copyrights.
(4) Financial strength:
To improve liquidity and have direct access to cash resource;
To dispose of surplus and outdated assets for cash out of combined
enterprise;
To enhance gearing capacity, Bank of Rajasthan row on better strength and
the greater assets backing;
To avail tax benefits;
To improve EPS (Earning per Share).
(5) General gains:
To improve its own image and attract superior managerial talents to manage
its affairs;
To offer better satisfaction to consumers or users of the product.
(6) Own developmental plans:
The purpose of acquisition is backed by the offer or companys own developmental
plans.
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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. but might feel resource constraints with limitations of funds and lack
of skill managerial personnels. 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.

(7) Strategic purpose:

The Acquire 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 of horizontal combination.
(8) Corporate friendliness:
Although it is rare but it is true that business houses exhibit degrees of co-operative
spirit despite competitiveness in providing rescues to each other from hostile
takeovers and cultivate situations of colla Bank of Rajasthan nations sharing
goodwill combinations. He combining corporate aim at circular combinations by
pursuing the objective.
(9) Desired level of integration:
Mergers and acquisitions 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 the
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requirements of the offer or company go a long way in selecting a suitable partner

for merger or acquisition in business combinations.

TYPES OF MERGERS
Merger or acquisition depends upon the purpose of the offer or company it wants to
achieve. Based on the offer ors objective profile, combination could be vertical,
horizontal, circular and conglomeratic as precisely described below with reference to
the purpose in view of the offer or company.
(A) Vertical combination:
A company would like to takeover another company or seek its merger with that
company to expand espousing backward integration to assimilate the resources of
supply and forward integration towards market outlets. The acquiring company
through merger of another unit attempts on reduction of inventories of raw material
and finished goods, implements its production plans as per the objectives and
economizes on working capital investments. In other words, in vertical combinations,
the merging undertaking would be either a supplier or a buyer using its product as
intermediary material for final production.
The following main benefits accrue from the vertical combination to the acquirer
company i.e.
1. It gains a strong position because of imperfect market of the intermediary
products, scarcity of resources and purchased products;
2. Has control over products specifications.
(B) Horizontal combination:
It is a merger of two competing firms which are at the same stage of industrial
process. The acquiring firm belongs to the same industry as the target company.
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The mail purpose of such mergers is to obtain economies of scale in production by

eliminating duplication of facilities and the operations and broadening the product
line, reduction in investment in working capital, elimination in competition
concentration in product, reduction in advertising costs, increase in market
segments and exercise better control on market.
(C) Circular combination:
Companies producing distinct products seek amalgamation to share common
distribution and research facilities to obtain economies by elimination of cost on
duplication and promoting market enlargement. The acquiring company obtains
benefits in the form of economies of resource sharing and diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM
and Modi Industries. The basic purpose of such amalgamations remains utilization of
financial resources and enlarges debt capacity through re-organizing their financial
structure so as to service the shareholders by increased leveraging and EPS,
lowering average cost of capital and thereby raising present worth of the outstanding
shares.

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DIFFERENCE BETWEEN MERGERS AND AQUISITION

Merger
Acquisition
The case when two companies The case when one company takes
(often of same size) decide to over another and establishes itself
move forward as a single new as the new owner of the business.
company instead of operating
business separately.
The stock of both the companies The buyer company swallows the
are surrendered while new stock business of the target company,
are issued afresh.

which ceases to exist.

For example, Glaxo Wellcome and Dr. Reddy Labs acquired Betapharm
SmithKline Beecham ceased to through an agreement
exist and merged to become a $597 million.
new company, known

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amounting

POSSIBLE IMPACT OF MERGERS AND ACQUISITIONS

Impacts on Employees
Mergers and acquisitions may have great economic impact on the employees of
the organization. In fact, mergers and acquisitions could be pretty difficult for the
employees as there could always be the possibility of layoffs after any merger or
acquisition. If the merged company is pretty sufficient in terms of business
capabilities, it doesn't need the same amount of employees that it previously had to
do the same amount of business. Due to the changes in the operating environment
and business procedures, employees may also suffer from emotional and physical
problems.
Impact on Management
The percentage of job loss may be higher in the management level than the general
employees. The reason behind this is the corporate culture clash. Due to change
in corporate culture of the organization, many managerial level professionals, on
behalf of their superiors, need to implement the corporate policies that they might
not agree with. It involves high level of stress.
Impact on Shareholders
Impact of mergers and acquisitions also include some economic impact on the
shareholders. If it is a purchase, the shareholders of the acquired company get
highly benefited from the acquisition as the acquiring company pays a hefty amount
for the acquisition. On the other hand, the shareholders of the acquiring company
suffer some losses after the acquisition due to the acquisition premium and
augmented debt load.
Impact on Competition
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Mergers and acquisitions have different impact as far as market competitions are
concerned. Different industry has different level of competitions after the mergers
and acquisitions. For example, the competition in the financial services industry is
relatively constant. On the other hand, change of powers can also be observed
among the market players.

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ADVANTAGES OF MERGERS
Mergers and takeovers are permanent form of combinations which vest in
management complete control and provide centralized administration which are not
available in combination of holding company and its partly owned subsidiary.
Shareholders in the selling company gain from the merger and takeovers as the
premium offered to induce acceptance of the merger or takeover offers much more
price than the book value of shares. Shareholders in the buying company gain in the
long run with the growth of the company not only due to synergy but also due to
boots trapping earnings.
Mergers and acquisitions are caused with the support of shareholders, managers
ad promoters of the combing companies. The factors, which motivate the
shareholders and managers to lend support to these combinations and
the resultant consequences they have to bear, are briefly noted below
based on the research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies should enhance in value. The
sale of shares from one companys shareholders to another and holding investment
in shares should give rise to greater values i.e. The opportunity gains in alternative
investments. Shareholders may gain from merger in different ways viz. From the
gains and achievements of the company i.e. through
(a)Realization of monopoly profits;
(b)Economies of scales;
(c)Diversification of product line;
(d)Acquisition of human assets and other resources not available otherwise;
( e ) Better investment opportunity in combinations
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One or more features would generally be available in each merger where

shareholders may have attraction and favor merger.

(2)From the standpoint of managers

Managers are concerned with improving operations of the company, managing the
affairs of the company effectively for all round gains and growth of the company
which will provide them better deals in raising their status, perks and fringe benefits.
Mergers where all these things are the guaranteed outcome get support from the
managers. At the same time, where managers have fear of displacement at the
hands of new management in amalgamated company and also resultant
depreciation from the merger then support from them becomes difficult.

(3) Promoters gains

Mergers do offer to company promoters the advantage of increasing the size of their
company and the financial structure and strength. They can convert a closely held
and private limited company into a public company without contributing much wealth
and without losing control.
4) Benefits to general public
Impact of mergers on general public could be viewed as aspect of benefits and costs
to:
(a) Consumers
The economic gains realized from mergers are passed on to consumers in the form
of lower prices and better quality of the product which directly raise their standard of
living and quality of life. The balance of benefits in favour of consumers will depend
upon the fact whether or not the mergers increase or decrease competitive
economic and productive activity which directly affects the degree of welfare of the
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consumers through changes in price level, quality of products, after sales service,
etc.
(b) Workers community
The merger or acquisition of a company by a conglomerate or other acquiring
company may have the effect on both the sides of increasing the welfare in the form
of purchasing power and other miseries of life. Two sides of the impact as discussed
by the researchers and academicians are:
First, mergers with cash payment to shareholders provide opportunities for them to
invest this money in other companies which will generate further employment and
growth to uplift of the economy in general. Secondly, any restrictions placed on such
mergers will decrease the growth and investment activity with corresponding
decrease in employment.
Both workers and communities will suffer on lessening job Opportunities, preventing
the distribution of benefits resulting from diversification of production activity.
(c) General public
Mergers result into centralized concentrate of power. Economic power is to be
understood

as

the

ability

to

control

prices

and

monopolists. Such monopolists affect social and political

industries
environment

output
to

as
till

everything in their favour to maintain their power ad expand their business empire.
These advances result into economic exploitation.
But in a free economy a monopolist does not stay for a longer period as other
companies enter into the field to reap the benefits of higher prices set in by the
monopolist. Every merger of two or more companies has to be viewed from different
angles in the business practices which protects the interest of the shareholders in
the merging company and also serves the national purpose to add to the welfare of
the employees, consumers and does not create hindrance in administration of the
Government polices..
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REGULATIONS OF MERGER AND ACQUISTIONS

Mergers and acquisitions are regulated under various laws in India. The objective of
the laws is to make these deals transparent and protect the interest of all
shareholders. They are regulated through the provisions of:The Companies Act, 1956
The Act lays down the legal procedures for mergers or acquisitions:-

Permission for merger :- Two or more companies can amalgamate only when
the amalgamation is permitted under their memorandum of association. Also,
the acquiring company should have the permission in its object clause to carry
on the business of the acquired company. In the absence of these provisions
in the memorandum of association, it is necessary to seek the permission of
the shareholders, board of directors and the Company Law Board before
affecting the merger.

Information to the stock exchange : - The acquiring and the acquired companies
should inform the stock exchanges (where they are listed) about the merger.
Approval of board of directors: - The board of directors of the individual companies
should approve the draft proposal for amalgamation and authorize the
managements of the companies to further pursue the proposal.
Application in the High Court: - An application for approving the draft
amalgamation proposal duly approved by the board of directors of the
individual companies should be made to the High Court.

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 Shareholders' and creators' meetings: - The individual companies should hold

separate meetings of their shareholders and creditors for approving
the amalgamation scheme. At least, 75 percent of shareholders and creditors
in separate meeting, voting in person or by proxy, must accord their approval
to the scheme.

Sanction by the High Court: - After the approval of the shareholders

and creditors, on the petitions of the companies, the High Court will pass an
order, sanctioning the amalgamation scheme after it is satisfied that the
scheme is fair and reasonable. The date of the court's hearing will be
published in two newspapers, and also, the regional director of the Company
Law Board will be intimated.

Filing of the Court order: After the Court order, its certified true copies will be
filed with the Registrar of Companies.
Transfer of assets and liabilities : -The assets and liabilities of the acquired
company will be transferred to the acquiring company in accordance with the
approved scheme, with effect from the specified date.
Payment by cash or securities:- As per the proposal, the acquiring company
will exchange shares and debentures and/or cash for the shares and
debentures of the acquired company. These securities will be listed on
the stock exchange.

The Competition Act, 2002

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The Act regulates the various forms of business combinations through Competition.
Under the Act, no person or enterprise shall enter into a combination, in the form of
an acquisition, merger or amalgamation, which causes or is likely to cause an
appreciable adverse effect on competition in the relevant market and such a
combination shall be void. Enterprises intending to enter into a combination may
give notice to the Commission, but this notification is voluntary. But, all combinations
do not call for scrutiny unless the resulting combination exceeds the thresh old limits
in terms of assets or turnover as specified by the Competition Commission of India.
The Commission while regulating a 'combination' shall consider the following
factors: Actual and potential competition through imports;
Extent of entry barriers into the market;
Level of combination in the market;
Degree of countervailing power in the market;
Possibility of the combination to significantly and substantially increase prices or
profits;
Extent of effective competition likely to sustain in a market;
Availability of substitutes before and after the combination;
Market share of the parties to the combination individually and as a combination;
Possibility of the combination to remove the vigorous and effective competitor
or competition in the market;

Nature and extent of vertical integration in the market;

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 Nature and extent of innovation;

Whether the benefits of the combinations outweigh the adverse impact of the
combination.
Thus, the Competition Act does not seek to eliminate combinations and only aims
to eliminate their harmful effects.

PROCEDURE OF MERGERS & ACQUISITIONS

[34]

Public announcement:
To make a public announcement an acquirer shall follow the following procedure:
1. Appointment of merchant banker :
The acquirer shall appoint a merchant banker registered as category I with SEBI to
advise him on the acquisition and to make a public announcement of offer on his
behalf.

2. Use of media for announcement :

Public announcement shall be made at least in one national English daily one Hindi
daily a done regional language daily newspaper of that place where the shares of
that company are listed and traded.

3. Timings of announcement:
Public announcement should be made within four days of finalization of negotiations
or entering into any agreement or memorandum of understanding to acquire the
shares or the voting rights.

4 Contents of announcement:
Public announcement of offer is mandatory as required under the SEBI Regulations.

(1)Paid up share capital of the target company, the number of fully paid up
and partially paid up shares.

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( 2 ) Total number and percentage of shares proposed to be acquired from public

subject to minimum as specified in the sub-regulation (1) of Regulation 21 that is:
a) The public offer of minimum 20% of voting capital of the company to the
shareholders;
b) The public offer by a raider shall not be less than 10% but more than 51%
of shares of voting rights. Additional shares can be had @ 2% of voting rights in any
year.
(3)The minimum offer price for each fully paid up or partly paid up share;
( 4 ) Mode of payment of consideration;
( 5 ) The identity of the acquirer and in case the acquirer is a company, the identity of
the promoters and, or the persons having control over such company and the group,
if any, to which the company belong;

( 6 ) The existing holding, if any, of the acquirer in the shares of the target company,
including holding of persons acting in concert with him;

(7) Salient features of the agreement, if any, such as the date, the name of the seller,
the price at which the shares are being acquired, the manner of payment of the
consideration and the number and percentage of shares in respect of which the
acquirer had entered into the agreement to acquire the shares or the consideration,
monetary or otherwise, for the acquisition of control over the target company, as the
case may be;

(8)The highest and the average paid by the acquirer or persons acting in concert
with him for acquisition, if any, of shares of the target company made by him
during the twelve month period prior to the date of the public announcement;
[36]

( 9 ) Objects and purpose of the acquisition of the shares and the future plans of the
acquirer for the target company, including disclosers whether the acquirer proposes
to dispose of or otherwise encumber any assets of the target company:

Provided that where the future plans are set out, the public announcement
shall also set out how the acquirers propose to implement such future plans;
( 1 0 ) The specified date as mentioned in regulation 19;
(11)The date by which individual letters of offer would be posted to each of the
shareholders;
( 1 2 ) The date of opening and closure of the offer and the manner in which and the
date by which the acceptance or rejection of the offer would be communicated to the
shareholders;

(13)The date by which the payment of consideration would be made for the shares
in respect of which the offer has been accepted;

(14) Disclosure to the effect that firm arrangement for financial resources required to
implement the offer is already in place; including the details regarding the sources
of the funds whether domestic i.e. from banks, financial institutions, or otherwise
or foreign i.e. from Non-resident Indians or otherwise;

( 1 5 ) Provision for acceptance of the offer by person who own the shares but are not
the registered holders of such shares;

[37]

(16)Statutory approvals required

to

obtained for the purpose

of acquiring

the

shares under the Companies Act, 1956, the Monopolies and Restrictive Trade
Practices Act, 1973, and/or any other applicable laws;

( 1 7 ) Approvals of banks or financial institutions required, if any;

( 1 8 ) Whether the offer is subject to a minimum level of acceptances from the

shareholders; and

(19)Such other information as is essential fort the shareholders to make an informed

design in regard to the offer.

WHY MERGERS FAIL?

It's no secret that plenty of mergers don't work. Those who advocate mergers will
argue that the merger will cut costs or boost revenues by more than enough to
[38]

justify the price premium. It can sound so simple: just combine computer systems,
merge a few departments, use sheer size to force down the price of supplies and the
merged giant should be more profitable than its parts. In theory, 1+1 = 2 sounds
great, but in practice, things can go awry.
Historical trends show that roughly two thirds of big mergers will disappoint on their
own terms, which means they will lose value on the stock market. The motivations
that drive mergers can be flawed and efficiencies from economies of scale may
prove elusive. In many cases, the problems associated with trying to make merged
companies work are all too concrete.

Below example show the, how would be implication came in banking

sector:
4.3 FINANCIAL IMPLICATIONS OF BANKING M&A
These indicators include measures of financial performance:

asset and liability composition

capital structure
liquidity
risk exposure
profitability
financial innovation and efficiency

As dependent variable, we measure change of performance as the difference

between the merged banks two-year average return on equity (ROE ) after the
acquisition and the weighted average of the ROE of the merging banks two years
before the acquisition.

COST OF MERGERS AND ACQUISITIONS

[39]

Costs of mergers and acquisitions are an important and integral part of mergers and
acquisitions process. Before going for any merger or acquisition, both the
companies calculate the costs of mergers and acquisitions to find out the viability
and profitability of the deal. Based on the calculation, they decide whether they
should go with the deal or not.

In mergers and acquisitions, both the companies may have different theories about
the worth of the target company. The seller tries to project the value of the company
high, whereas buyer will try to seal the deal at a lower price. There are a number
of legitimate methods for valuation of companies.

5.1 REASONS FOR MERGERS AND ACQUISITIONS

Capacity
Economies of Scale
Accessing technology or skills
Tax reasons
Growth with External Efforts
Deregulation
Technology
New Products/Services
Over Capacity
Customer Base
Merger of Weak Bank

Chapter no:- 4
[40]

PROCEDURE FOR BANK MERGER

[41]

PROCEDURE FOR BANK MERGER

The procedure for merger either voluntary or otherwise is outlined in
the respective state statutes/the Banking regulation Act. The Registrars, being
the authorize vested with the responsibility of administering the Acts,
will be ensuring that the due process prescribed in the Statues has been
compiled

with

before

they

seek

the

approval

of

the

RBI.

They would also be ensuring compliance with the statutory procedures for
notifying the amalgamation after obtaining the sanction of the RBI.

Before deciding on the merger, the authorized officials of the acquiring

bank and the merging bank sit together and discuss the procedural modalities
and financial terms. After the conclusion of the discussions, a scheme is
prepared incorporating therein the all the details of both the banks and the
area terms and conditions.

Once the scheme is finalized, it is tabled in the meeting of Board of directors of

respective banks. The board discusses the scheme thread bare
and accords its approval if the proposal is found to be financially viable
and beneficial in long run.
After the Board approval of the merger proposal, an extra ordinary general
meeting of the shareholders of the respective banks is convened to discuss
the proposal and seek their approval.

After the board approval of the merger proposal, a registered valuer is

appointed to valuate both the banks. The value valuates the banks on the
[42]

basis of its share capital, market capital, assets and liabilities, its reach
and anticipated growth and sends its report to the respective banks.
Once the valuation is accepted by the respective banks, they send the
proposal along with all relevant documents such as Board approval,
shareholders approval, valuation report etc. to Reserve Bank of India and
other regulatory bodies such Security and Exchange Board of India(SEBI) for
their approval.

After obtaining approvals from all the concerned institutions, authorized

officials of both the banks sit together and discuss and finalize share allocation
proportion by the acquiring bank to the shareholders of

the

merging

bank (SWAP ratio)

After completion of the above procedures, a merger and acquisition agreement

is signed by the bank.

[43]

Chapter no :-5
GUIDELINES ON MERGERS & ACQUISITIONS OF
BANKS

[44]

GUIDELINES ON MERGERS & ACQUISITIONS OF BANKS

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 State Governments have incorporated
in their respective Acts a provision for obtaining prior sanction in writing, of RBI
for an order, inter alia, for sanctioning a scheme of amalgamation or
reconstruction.

[45]

 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 bank/s registered under 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 cooperative 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 society under the State Acts with that under
the

Central

Act,

it

is

felt

that

,if

Allconcerned 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. In other words, Reserve Bank will confine its examination only to
financial aspects and to the interests of depositors as well as the stability
of the financial system while considering such proposals.

[46]

Chapter no: 4
Data analysis of merger and acquisition of
some company

[47]

British Salt Acquisition

-20thDecember 2010
Background:All soda ash manufacturers have ownership of their key raw material tronaor salt
deposits
This was the case for Brunner Mond (BM) until 1991 when it was divested from ICI
the salt deposits are now owned by Ineos
This highly unusual position has been made tenable by the existence of a 25 year
contract made as part of the divestment
It has been recognized for some time that BM needs to restore the umbilical to its
key raw material
The existing contract with Ineos is set to expire in 2016
Due to the consolidated nature of salt (Brine) industry, BM is at a disadvantage to
negotiate a similar long term contract with Ineos
In case of contract renewal with Ineos, it is expected that BMs sourcing cost for
brine would increase substantially
British Salt is the only other producer of Brine in UK
British Salt (BS)
British Salt, established in the 1920s is located in Middlewich, UK
Products from BS stable are:
Brine
Un-dried vacuum salt
Pure dried vacuum salt
Compact vacuum salt
BS currently produces 390 ktesof vacuum salt per year and is the leader in UK
evaporated salt market
[48]

Salt reserves of BS can serve UK requirement for up to ~50 years

BS has developed long standing relationships with leading companies in food,
Industrial and Chemicals sectors in UK
Its customer relationship with key customers extends up to 30 years
In the recent years, BS has successfully developed gas storage opportunities from
brine cavities

UK evaporated salt market share 2009 by volume

import

ineos

British salt

Strategic benefits from acquisition

Provides secure, cost-effective brine supply
Maintains and enhances BMs low cost position within Europe
Generates substantial and consistent cash flows from the highly profitable and
non- cyclical vacuum salt business
Generates additional cash flows from operational synergies between British salt
and BM
Unique opportunity to generate large cash flows from gas storage business

Acquisition details
British Salt has been valued at 93 m (approx. 6x EBITDA)
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BM to have 100% equity ownership of BS

The deal is entirely debt financed on a non- recourse basis to Tata Chemicals
Financial Impact
Impact on BM UK
Maintenance of sourcing costs at current levels which would not have been
possible without this deal
Increased EBITDA of 15m per year from vacuum salt business
Synergies between BM and British Salt to result in EBITDA improvement of 2m
per year
Increased cash of 45m from lease of cavities for gas storage after 5 years
BSs defined benefit pension in small surplus on FRS17 basis and closed to future
accrual
Impact on TCL
Post- acquisition, TCL comfortably placed in view of existing debt covenants on a
consolidated basis

Adidas acquired to Reebok

Adidas company profile: Founded in 1926
World leader in soccer shoes
#2 behind Nike worldwide - #4 in the US
Three acquisitions before Reebok:
Company Sports Incorporation in 1993
Salomon in 1997
Arc'Teryxin 2002
Culture of control, engineering, and production
[50]

Reebok company profile: Founded in 1895

First athletic shoe for woman
#2 in US - #4 in Europe
Strong sales growth from 2002-2004
Unique portfolio of long term league licenses
Creative marketing-driven culture

INDUSTRY OVERVIEW
One of the most competitive industries.
Over 75% of the industry controlled by branded items.
Large players supplier power and access to shelf space.
Small players anticipating a fashion trend.
Private label a threat.

US FOOTWEAR MARKET

[51]

ACQUISITION BACKGROUND
Goal: increase share in the U.S. market + better compete with Nike
Stock prices improved the day of announcement
Reebok sales down in fourth quarter of 2005
Deal closed on January 2006
Price: $3.52 billion

SWOT ANALYSIS
STRENGTH
Adidas is strong in Europe, Reebok is strong in US, & Asia
Complementary licenses and contracts
Reduced costs for retailers
Reebok is extremely strong in Womens wear
WEAKNESSES
Many overlapping products
Two HQs that will be hard to integrate
Two very strong, distinct corporate cultures
[52]

OPPORTUNITIES
Leverage combined R&D strengths & budgets
Bring Reeboks womens wear to Europe
Reduce costs to retailers by larger distribution networks
Ability for better reaction to global trends

THREATS
Competition between brands employees
Cannibalization of sales
Realization of revenue growth synergies
Adidas may treat Reebok as a second tier brand
SYNERGIES
Geographies and Categories
Idea sharing across markets and geographies
Capitalize on Reebok's skills and know how to accelerate Adidas position in
North America
Benefit from Adidas expertise in Europe and Reebok's in Asia
Combine expertise in branded and licensed athletic apparel
Consumer & Demographics
Ability to identify sport/style trends
Better product and category prioritization
More products and more price points
[53]

 Continue brand developments into new segments

Benefit from Reebok's expertise in Women's segment
Capitalize from Reebok's skills in sport lifestyle and leisure
Technology
Enhance profile as technology leader and innovation leader
Bigger combined R&D spend
More products to capitalize on R&D spending
New technology developments and awareness across brands
Applications
Materials

Licenses, Events and Teams

Transfer of skills and know-how
Management of exclusive agreements
Relationship with teams and athletes
More active events calendar

ACTUAL ACQUISITION STATISTICS

Adidas paid $3.527 billion for Reebok
Adidas paid $59.00 per share for all of Reeboks shares
Adidas paid a 34.2% premium which was still accretive to the P/E ratio
Based on our model Adidas could have paid between $53.91 & $66.85

INTEGRATION ISSUES
Research & Development
[54]

 Combined to share both costs and technology

Reduced employees and raised efficiencies
Brand Imaging to Reebok as Premium Shoe
New Pay-as-You-go system reduces retailer sales on Reebok
Customize shoes through a website
Increase Prices
Reduce manufacturing of Classic Styles
Geographies and Product Lines
Increased international presence and product lines (i.e. shoes & apparel)
Licenses, Events and Teams
Very similar strategy for both brands but Adidas gets Reebok NBA
contract
Contd
Management /Structure Changes
New Brand CEOs and Reebok CEO to Advisor
Head Quarters to Remain
Integration planning team comprised of employees from both
Employee Care and Retention
Mixed employee benefits
HR resources to all employees
Distribution Centers and Back Operations
Combined many Distribution Centers and Back Operations
Reebok switched from a Bulk Pre-Order system to Pay-as-You-go
Consolidate Suppliers

[55]

POST INTEGRATION RESULTS

Management/Structure Changes
Successful through speed, efficiency and cooperation
Employee Care
Handled as well as could be expected
Distribution Centers
Mixed Emotions in short term, spent money to become efficient
Taking longer than anticipated
R&D
Successful at reaching companies goals on new products & efficiency
Brand Imaging
Continue to face uphill battle and challenge
Success is still possible in long term
Geographies and Product Lines
Expansion into new countries has partially offset loses in mature markets
New product lines and strategies have produced mixed results
Licenses, Events and Teams
With little change no success or failure has been noticed

DID MERGER WORK???

Our focus this year will be on getting Reebok back onto a growth track. It's
going to take time, but we're moving in the right direction.
- Herbert Hainer, Adidas Chief Executive in 2007
Gross margins dropped 3.6% in 2007.
Sales and order back log of Reebok declined.
[56]

 The whole group still made money.

WHAT WENT WRONG??

Misperception among Retail Partners about the future of Reeboks brand
strategy
Questions about the German American Corporate Culture.
Underestimation of competition from Nike.

WHAT HAPPENING NOW??

In 2008, Adidas put in an extra $50 million to bring back Reebok on
track.Started realizing some of the synergies in late 2008 but on a lower scale
than estimated.

CONCLUSION
One of the most common reasons for mergers and acquisitions is the belief that
"synergies" exist, allowing the two companies to work more efficiently together than
either would separately. Such synergies may result from the firms' combined ability
to exploit economies of scale, eliminate duplicated functions, share managerial
expertise, and raise larger amounts of capital. Another reason for banks to
move towards merger is that they are motivated by a desire for greater market
power.
The 'human factor' is a major cause of difficulty in making the integration between
two companies work successfully. If the transition is carried out without sensitivity
towards the employees who may suffer as result of it, and without awareness of
the vast differences that may exist between corporate cultures, the result is a
[57]

stressed, unhappy and uncooperative workforce - and consequently a drop in

productivity Decision to carry out a merger or acquisition should consider not only
the legal and financial implications, but also the human consequences - the effect of
the deal upon the two companies' managers and employee
Almost 60 -70% mergers and acquisitions and the reason for the failure is cultural
differences, flawed intentions, and sometimes decisions are taken without properly
analysis the future of the merger.

Recommendation:The conclusion shows that the merger and acquisition is becoming more important
in day to day life from the point of view of the loss running business and for those
entrepreneur who wants to expand their business

by selling a unit or buy

purchasing a unit or the entire empire. Regular increase in competition has made
merger and acquisition a necessity. Some Companies depend on the risk and return
and give tips to their companies to make flexibility in the market.

[58]

WIBLOGRAPHY

www.investopedia.com
www.business.mapsofindia.com
www.bloomberg.com
www.legalserviceindia.com
www.slideboom.com
www.papercamp.com
www.moneycontrol.com

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