A Contemporary Report

ON

Merger and Acquisition

By
OM PRAKASH PRAJAPATI
MBA: 2nd semester

A report submitted in partial fulfillment of the requirements of PG program

(class of 2009-2011)
PACIFIC INSTITUTE OF TECHNOLOGY

Submitted to
PROF.ANITA SUKHWAL
Head of Management Studies
Pacific Institute of Technology
Udaipur (Raj.)-313001
 CERTIFICATE

This is to certify that the project report entitled “Merger and Acquisition”
submitted for the practical fulfillment of paper on contemporary Issues in
Semester II (MBA Program-2009-2011) Pacific Institute of Technology is a
record carried out by Om Prakash Prajapati under my supervision and
guidance.

This is an original piece of work and all references taken have been
mentioned in the report. The literacy presentation of the project is
satisfactory.

(Prof.Anita Sukhwal)
Head-Management Studies
Udaipur (Raj.)
 TABLE OF CONTENTS.

CERTIFICATE
ACKNOWLEDGEMENT
OBJECTIVES AND PROJECT DESIGN

1.) Chapter 1: Abstract.

2.) Chapter 2: Conceptual Framework
3.) Chapter 3: Review of Literature: Latest trends in corporate
4.) Chapter 4: Conclusions.

BIBLIOGRAPHY
 OBJECTIVES & PROJECT DESIGN

This chapter is concerned with the project methodology, which is the foundation stone of
a Project, Project Objectives, and Data Collection.

Statement of the Problem:

The present study explores various aspects of, the statement is:-
“Merger and Acquisition’’.

Project Objectives:

The main objectives of the research work are:-

1.) To study and acquire in depth knowledge in the field
2.) To analyze the latest trends and development in the corporate environment in the
field of “Merger and Acquisition’’

DATA COLLECTION:

The design chosen for the study was review of articles in renowned reoffered Journals,
Newspares, Magazines, References Books and Websites.

Collection of Secondary data: - To provide a base to the current study variety of

secondary data sources has been tapped to develop a conceptual framework.

The sources of secondary data were sort mainly from Pacific Institute of Management
Library, Pacific Institute of Technology Library, Pacific Business School Library and
Pacific Institute of Management and Technology Library.

Help of various engines on internet, mainly google.com and yahoo.com for reference
articles on the subject. Various academicians and practitioners in this field for
guidance have also been consulted.

Limitations of the Study:-

1.) The time constraint was a hurdle, as such Primary data Collection could not be
done.
2.) The topic was contemporary and had limited data available. But an attempt to
present the best has been done.
 ACKNOWLEDGEMENT

It is a pleasure for me to express my gratitude towards those who are involved in

completion of my report. I whole heartedly thanks to Director Sir of the institution-Prof
R.K.Aeron, Supervisor Mam: Prof.Anita Sukhwal, Faculty Guide Mam: Miss Jyoti
Jyoshi, Prof.B.P.Sharma Sir, and Prof Harshita Shrimali Mam, for their guidance. Their
friendly cooperation and timely guidance made us feel the job of completing our report
easy and interesting.

I am also thankful to all the Teaching and Non-Teaching faculty members, and the people
who helped us directly or indirectly for the completion of this work with success. This
work would not have attained the present form without the sincere and constant help and
co-operation provided by all the friends and well-wishers.

Om Prakash Prajapati
2nd SEM, MBA
CHAPTER:1

ABSTRACT
Merger and Acquisition have become a routine feature than an exception in the present
day business scenario. In a merger companies join up with each other sharing their
resources to reach a common goal. Shareholders of both the entities continue as join
owners of the merged entity. In an acquisition , as the denotes, one firm out rightly
purchases the assets or shares or both of another company whose shareholders lose their
claim on the acquired outfit once the deal is over. As businesses expanding with
diversification becoming the order of day, merger and acquisition are being adopted as
strategic tools for growth. Restricting to core area makes no business sense any longer, as
one can see the way both the houses of reliance are foging ahead with entry into virtually
ever field. Tatas are rewriting their corporate history with acquisition galore. No different
is the case with the other major industrial houses. All the augurs well for our country
which is poised to become an economic force to reckon with, very soon.
.
Winning the race to future and the rest world requires a strong sense of purpose and
speed. Yet, few companies, if any, have what it takes to run the race on their own. The
idea of racing as a team is somehow uplifting to the human spirit. The logic of bringing
many heads together to achieve what was previously considered difficult or impossible
on an individual basis is somehow compelling.

The trends towards globalization of all national and regional economies has
increased the intensity of mergers , in a bid to create more focused, competitive, viable,
larger players, in each industry. The recent liberalization has made mergers more
necessary and acceptable. The globalization may entail redundancies and closures of
inefficient units as a consequence of technological upgradation and modernization . As it
open the flood gates of competition between unequal partners. The working units below
average efficiency are more favourable to mergers and takeover.
CHAPTER: 3

REVIEW OF LITERATURE: LATEST TRENDS

IN CORPORATE:

Mergers and Acquisitions Some Paramount Concerns for the

Human Resource Development Practitioner
Mergers and acquisitions are areas that may provide a bevy of opportunities for
the human resource development practitioner. Prior to any discussion regarding these
seemingly elusive constructs, one must examine them from several perspectives. Some
organizational leaders may view a specific endeavor as a merger; others may view the
same endeavor as an acquisition, which is largely dependent upon some specific
particulars associated with the business.

Creating new synergies

M&As are an alluring way for companies to cut costs and achieve synergistiv
financial gains in a growing global market. While profits are the measure of success in
M&As, the driving force behind the success of failure rests on the human resources of the
companies, The recent reports suggest that 50 to 80% of mergers fail because of an
inability to intergrate people into a bohesive new entity. It is well recognized that
merging organizations cultural integration is one of the most crucial ad arduous tasks i a
merger. When the collective identity of the organization is challenged, the post merger
trauma can be significant to employees asn managers. As a result, the organizations
suffers from employees with poor morale, lack from employees with poor morale, lack of
trust, decreased commitiment and attitudinal problems.

This article presents guidelines to assist organizations in managing the crucial

process of merging organizational cultures. In review of successful M&As, a common
characteristic is a proactive approach for crearing a new culture that is salient to the
people from both organizations. This is accomplished byi recognizing toe role of both the
leader and the employees in the meaning at various levels within toe new organization
and using every day events to influence change.

Preparing for the change

Successful mergers require a leader Who unequivocally understands and utilizes

the Cultural differences in every aspect of the merger process Before movthg forward, it
is vital to have employee buyin, This is accomplished in several ways. One way is for
leaders to make an effort to understand the histories and distinctiveness of the groups of
employees involved at both organizations. For example, managers may want to arrange
meetings between employees at each organizations. Before the merger event During these
meetings, it is important to share common ideas, beliefs, values and the mission of the
organizations. Finding common values creates Unity.

Margers and Acquisitions Operationally Defined

M&As have been discussed thus far from an extremel;y pragmatic perspective-
these constructs are essentially elusive but they appear to be easily defined. Same areas of
concern for the leaders of any organization (whether going through a merger or
acquisition or not) are related to the people who comprise the organization. In essence,
when one speaks about mergers and acquisitions one must consider the people who
comprise the organization from the outset. It may appear to be elementary that any
organization is comprised of people but it must be reiterated during a highly volatile
environment such as a merger or acquisition. It is the people who are the citizens of the
organizations who have cognized goals and aspirations that are both personal and
professional—these goals and aspirations must be addressed in a safe and harmonious
environment prior to the merger or acquisition as well as during the process. If one
considers the people of an organization prior to the merger or acquisition; the endeavor
may result in a positive venture for all concerned.
The Success of Mergers and Acquisitions Depends on People
Indian Companies incresingly use M&As to realize their strategic goals. Last
year, they had beer fitivolved in almost 1,400 transactions with a value of $59 bn. Cross-
border deals are very important and make up half of all deals While acquisitions by the
Indian companies abroad make up only 17%, foreign companies are much more
acquisitive in India with 32% of all deals. It is an important fact that Indian companies
increasingly use M&As transactions to grow international or even globally. The most
popular destination for acquisitions abroad byIndian companies in 2007 was the US. In
total, most M&As deals with Indian parties involved were done in the financial sector
followed by high technology and industrial sectors. However, about 75% of 41 mergers
and acquisitions do not meet the expectations. Inmost tãäes so-called “people issues” are
blamed for, failure or results below expectation.

Thorough Human Capital Due Diligence

A thorough human capital due diligence, is an important cornerstone for laying the
foundation of a successful deal. The due diligence, when the target company or merger
partner is analyzed for risks and opportunities, offers a chance to learn in detail about the
other party and to prepare for the integration phase ahead. If this due diligence is done the
right way, it greatly increases the chances of success. The human capital due diligence is
only a part of the overall due diligence which also includes a financial,
commercial/operational and legal due diligence. Components to be analyzed as part of
the human capital due diligence are talent, organizational design, workforce remuneration
and industrial relations.

Mastering the Biggest Challenges During Integration Phase

 Arranging and closing an acquisition or a merger causes a lot of work. The
essential and hardest work load, however, comes with the integration phase. During
integration, four of the six biggest challenges are people related. Managers see the
greatest challenge in combining the implementation of integration and change with
continuing daily business operations. In order to master that challenge, additional staff
resources are needed. The next hurdle is that targets in M&As deals are quite ambitious.

Acquisitions and Mergers as A Business Policy : A Study

The Trend towards globalization of all I national and regional economfes has increased
intensity of mergers in in a bid to create more focused competitive, viable and larger
players in each in deustry. Merger and Acquisitions have become increasingly important
channel of cross border industrial restructuring and foreign direct investment all over the
world in the India the policy liberalization in the 1990s has facilitated M&A including
cross-border M&As.

In post-globalization scenario industrial units which want to survive, have to excel and
compete successful both with domestic and multinational Competitors in internal as well
as international market. As a result the business increase competitive, viability an
confident its position.

Merger and Acquisition have emerged as a natural process of business restructuring

throughout the world. The process of M&A spans geographical boundaries, cross-border
M&A, mostly by multinational corpora MNCs. For the Indian industry market driven
M&As are essentially a phenomenon of the late 1990s.

Merger and Acquisition as a Strategic choice :

A merger is popularly understood to be a fusion of two companies. Generally, acquisition

is the purchase by one company of a substantial part of the assets of security of another,
normally for the purpose of the acquired entity. The most poupular types of mergers are
horizontal, vertical, conglomerate and consolidation. They are not the only means of
corporate growth but are an alternative to organic growth. From time to time companies
have preferred external growth through M&A than organic growth due to some stratedic
objectives.

These strategic objectives may be growth and expansion of the firm, reduction of cost
throudgh economies of scale, gaining competitive advantage in existing product markets,
market of product extension, of risk reduction. Futther, like all other strategic decisions,
acquisitions should also satisfy the criterion of value addition.

Mergers and Acquisitons need to be placed in the context of the firm's broader corporate
and business strategy framework. Different types of acquisition are dictated by the firm
strategic imperatives and choices. The choice for opting to M&A strategy may be critical
to the healthy expansion of business firms, as they evolve through successive stages of
growth and development.

Trends and Patterns of Overseas Acquistions by Indian Frims:

The Indian drugs and pharmacetticals industry is one of the largest and most advanced
among the developing countries. The domestic drugs and phamaceuticals market in
anticipated to grow at an annual rate of 15.66 percent and export are excepted to grow at
an average annual rate of 29 percent for formulations and bulk drugs.

Some of the companies in this category have developed in the Indian Market and most to
htem into exports. Companies like Ranbaxy. cipla, Dr. Reedys, Cipla, and Cadila Healthe
Care Have all got US-FDA approvals which are a prerequistie for access to the US
market.

Number of overseas acquisitions by Indian firms was 33 in 2000 which come down to 21
in 2002, but again increased to 38 in 2003 and reached to a high of 177 in 2006 and witin
eight months of 2007, Indian MNCs have made 122 acquisitions worth nearly $ 32.9
billion. For the fist time in 2006 the value of overseas acquistitions done by Indian
Multinational exceeded foreign fim acquisitons made in India. Higher economies growth,
rising foreign exchange reserve, continuing liberralization of OFDI policy, increasing
bilarteral trade are the main reasons as to why tis has taken place.

Overeseas Acquisition by Indian Pharmaceutical Firms : In recent years, Indian

Pharmaceutical Industry has undertaken merger and acquisition in international markets
in order to globalize their operations and improve their intermational competitvenes.
There has been signifcant growti in merger and acquisition activity in Indiaa since 1991.

Year All Sector Pharmaceutical All Sector Pharmaceutical

(number) (number) ($ million) ($million)

2000 33 1 896 n.a.

2001 23 1 188 n.a

2002 21 5 2536 25.35

2003 38 4 649 45.65

2004 44 7 2787 9.88

2005 135 27 3564 21.52

2006 177 28 7658 28.78

2007 123 14 32858 2.16

Total 594 87 51136 7.20

Mergers and Acquistions Trends : Mergers and Acquisitions (M&A) interest in India
is currenty very high in the pharmaceutical industl9. Size and end-to-end connectivity are
malor dotnmersts in five global markets. To achieve them, Westem MNC's have to look
to Indian’ companies. India’s changing therapeutic requirements arid patent laws will
provide new opportunities for big pharnta for launching their patented molecules. While,
India is strong manufacturing base will stand global generic companies in good stead as a
tow-coal development and menutacturng destinationnesides consolidation in the domestic
industry and investments by the US and European tirnia, the spate of mergers and
acquisitions by Indian companies has ushered an era of the-Indian Pharrnaceutiod MNO’.
After traversing the teaming curve through partnerships asd alliances with intema’ iional
pha’maceulical firms, Indian pharnnacsul’cal companies have now moved up a step in
the value chain and are looking at inorganic route to growth through acquisitions. Many
top end middle her Indian ccrnpanies have gone on a global shopping spree to build up
critical maca in International markets. In addition, given the easy acoesa to global finance
the Indian companies are finding It baaier to lurid their acquisitions.

Indian pharmaceutical companies reign supreme compared to their multinational

counterparts in India- Profit mergina nI Indian companies are on the rise and the recant
trend of mergers and acquisitions by Indian pharmaceutical are likely to provide an up’
side to the growth numbers.

Given the increasing spate of merger and acquisitions in the global pharmaceutical sector,
the valuations are at an all time peak, there is toe couch money chasing too lee targets-
Going forward in this trend would slow down as valuations are cyclical in nature. The
consolidation trend will continue with Indian pharmaceutical players playing a major
role. With access to capital higher staying power. because of low costs, and management
willing to globalize this trend will continue.

Many of the MNCS patented drugs wilt come of patent by 2012-2014 Ibis again can be
seen as a opportunity to Indian Pharma firms to enter the global market in a significant
say due to their coat efficiency and competitive edge more so in the generic drug sector.

Long- term Post-merger Performance of Firms in India

Mergers are important corporate strategy actions that, among other things. aid the firm
external growth and provide in competitive advantage. This area has spawned a amount
of literature over the past half a restroom especially in the developed economies of the
world. India ton has been seeing a growth in the- number of mergers over the past one-
and-a-half decades since econonric tiberalialion and financial reforms were introduced in
1991. Studies on the post-merger long-terms performance of firms in both the developed
and the developing markets has not able to come to a definite and convincing conclusion
about whether mergers I, helped or hindered firm performance. Our literature review
shows that mergers do not appear to be resulting in favorable financial performance of
firms in the bug-term in the markets where they are a fairly recent phenomena.

Post-merger Long-term Operating Margin Performance :

This section examines the operating margin performance of the combinde firms affer
themerger. The attempt is to determine whether this performance is better as compated to
the premerger performance to these same firms that had not merged.

Two pairs of mergin firms Sun Pharmaceutials and M I Pharmaceuticals, and Usha ispal
and Usha Udyog are dropped from this analysis, since on analysing for ouflier, it was
found that the values pertaining to these pairs lie beyond three standard deviations. Data
of three pairs of merging firms could not be obtaned. The new sample sixe is thus 82
pairs of merging firms.

HCL’s Acquisition of Axon

On December 15,2008 HCL Technology Limited (HCL),a division of the Delhi –
based IT company ,HCL enterprises,its announced acquisition of UK based system
applications and products in data processing (SAP) consultancy firm, AXON group .

AXON,a consultancy firm,dealt in business transformation programs for corporate that

worked on application using a SAP platform.AXON had an important and large client
base with offices in UK,US Malaysia,Singapore,China,India and Australia.

The payment for the deal was made in cash.To fund the deal,HCL had taken monetary
.The acquisition was managed by HCL EAS, the UK based subsidiary of HCL and new
entity was to be called HCL AXON with Cardell,president,Axon,at the time of
acquisition,assuming the position of the new entity
CHAPTER: 4

CONCLUSION
The objective of above report was to test the hypothesis that merger in India have helped
firms perform better in the long term .A comprehensive understanding and an analysis of
the Indian industrial and economic context ,with studies carried out in the other market
,assisted in my arriving at this hypothesis ,as is evident from the section on the review of
extent empirical literature.My hypothesis that merger in India have resulted in improve
long term post merger firm operating performance stand validated through this study . we
are in a position to conclude that ,on an average ,merging firms in India appear to have
performed better financially after the merger, as compared to their performance in the
pre-merger period .This improvement in performance can be attributed to the merger
.
People account for the success in M&As. Especially during the vital integration phase
and the resulting and necessary change you need to consistently pay attention to success
factor and potential barrier .

The people who comprise any organization may fall prey to rumor and innuendos if the
organizational leader do not provide an abundance of valid and reliable information for
these people It is paramount for the people of any organization to be include during the
entire process of a merger or acquisition .It is also a paramount consideration for an
organization to operationally define the merger or acquisition as the endeavor progresses
perspective is a paramount consideration.

M&As are constructs that may have unlimited potential for all of the citizens of an a
organization if the information is provided in a valid and reliable manner. It is imperative
for the member of any organization to trust the organizational leaders during this type of
endeavor dialog is a powerful tool in building trust at all level of an organization
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