Preliminary steps in merger? Various methods of merger? Mergers are one of the main ways of concentrating businesses.

There are two possible types of merger. The first is through the formation of a new company (NewCo) and at the same time the dissolution of the previous legal entities. The second is through the merger of one or more companies into another company, with the result that the participating companies retain their identities. The purpose of a merger is of an economic/industrial nature. The merger of two or more organizations allows for the generation of cost synergies (administration, production, and listing costs), as well as greater geographical coverage (with a positive impact on revenues and the possibility of further growth). Preliminary Steps in Mergers

Identifying Industries & Select Sectors

Choosing companies and short-list good companies

Assessing suitability & appropriateness of timing

Negotiation stage and obtain approvals

Steps in a Merger There are three major steps in a merger transaction: planning, resolution, implementation. 1. Planning, which is the most complex part of the merger process, entails the analysis, the action plan, and the negotiations between the parties involved. The planning stage may last any length of time, but once it is complete, the merger process is well on the way. More in detail, the planning stage also includes: signing of the letter of intent which starts off the negotiations; the appointing of advisors who play the role of consultants, examining the strengths, weaknesses, opportunities, and threats of the merger; detailing the timetable (deadline), conditions (share exchange ratio), and type of transaction(merger by integration or through the formation of a new company); expert report on the consistency of the share exchange ratio, for all of the companies involved. 2. The resolution is simply management's approval first, then by the shareholders involved in the merger plan. The resolution stage also includes: the Board of Directors calling an extraordinary shareholders meeting whose item on the agenda is the merger proposal; the extraordinary shareholders meeting being called to pass a resolution on the item on the agenda; any opposition to the merger by creditors and bondholders within 60 days of the resolution; green light from the Italian Antitrust Authority, that evaluates the impact of the merger and imposes any obligations as a prerequisite for approving the merger. 3. Implementation is the final stage of the merger process, including enrolment of the merger deed in the Company Register. Normally medium-sized/big mergers require one year from the start-up of negotiations to the closing of the transaction. This is because, in addition to the time needed technically, there are problems relating to the share exchange ratio between the merging companies which is rarely accepted by the parties without drawn-out negotiations.

During the merger process, share prices will adjust to the share exchange ratio. On the effective date of the merger, financial intermediaries will enter the new shares with the new quantities in the dossiers. The shareholders may trade without constraint the new shares and benefit from all rights (dividends, voting rights). Merger types can be broadly classified into the following five subheads as described below. They are Horizontal Merger, Conglomeration, Vertical Merger, Product-Extension Merger and MarketExtension Merger. Horizontal Merger refers to the merger of two companies who are direct competitors of one another. They serve the same market and sell the same product. Conglomeration refers to the merger of companies, which do not either sell any related products or cater to any related markets. Here, the two companies entering the merger process do not possess any common business ties. Vertical Merger is effected either between a company and a customer or between a company and a supplier. Product-Extension Merger is executed among companies, which sell different products of a related category. They also seek to serve a common market. This type of merger enables the new company to go in for a pooling in of their products so as to serve a common market, which was earlier fragmented among them. Market-Extension Merger occurs between two companies that sell identical products in different markets. It basically expands the market base of the product.. Q 2. Synergy? Various types of synergy with hypothetical examples Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following: Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package. Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers. Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge. Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two.

Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers - who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a later section of this tutorial. .

What are the different types of synergies? When two related organizations are combined, synergies may come from two sources. 1. Operational synergies through cost savings, improved access to markets, and/or higher levels of successful innovation 2. Financial synergies-When unrelated organizations are combined, financial synergies typically are the only type readily available. Operational Synergies Cost Savings: Combined purchasing of raw materials Shared R&D expense Shared production facilities Shared processing knowledge Use of a common sales force Common order entry and sales service Common advertising and promotion Shared brand names Shared deliver arrangements Improved Market Access: Distribution of one partner's products through other partner's established distribution channels Combining of products to form one broader product line Improved Levels of Innovation: Shared experiences and learning resulting in new products, new applications, new market opportunities

Financial Synergies Access to larger amounts of capital Access to less expensive capital Ability to allocate funds to areas with greatest potential

Examples of a synergy? One of the worlds biggest synergies Does the public realize how submerged they are from every direction by any of the six entertainment synergies? The Walt Disney Company, one of the biggest name synergies known to the world, only second to AOL-Time Warner, has been described as a drug that hits you from every angle, no matter how hard you may try to avoid everything Disney. It is rare to go into almost any kind of store and not be able to find some Disney connection. Disney's road to becoming a successful synergy doesn't stop with just the obvious entertainment products and services, but targets audiences from other directions, creating the drug-like effect. Perhaps the most amazing part of their synergy is their connections with other huge companies that allow them to profit from advertisement, merchandise, and other inside deals. Disney has given exclusive selling rights to such companies as Coca-Cola, Minute Maid, Kraft, Dole, and McDonalds in their parks, meaning that no where on Disney property will you find Pepsi or a Burger King. This allows the companies to gain profit, but also Disney often offers sweepstakes, deals, and Happy Meal toys through these companies, gaining advertisement, promotion, and yet another way to surround the public. Companies like AT&T, Lego, GM, KODAK, Motorola, IBM, and Xerox have all sponsored different attractions at the Disney parks, giving them an opportunity to advertise and show their products while allowing Disney a way to pay for the production and upkeep of some of the biggest rides there. Many people also don't know about how much of the entertainment business Disney has a hand in. If you can think of a form of entertainment, Disney has a company that goes along with it. They own 8 magazine and book publishing groups, 17 magazines including ESPN Magazine and US Weekly, one television network, 15 cable television stations including the Classic Sports Network, A&E, The History Channel, Lifetime, and E!, 13 international broadcast stations, 29 radio stations including Radio Disney and ESPN Radio, 7 international

ventures, 4 television production and distribution companies, 8 movie production and distribution companies including Caravan and Miramax, a crude petroleum and natural gas company, over 660 world-wide Disney Stores, the Walt Disney Internet Group which provides websites such as NFL.com, Family.com, Oscar.com, and ABC.com, the Go Network, a video gaming company, 5 music companies such as Hollywood Records and Mammoth Records, 3 Broadway productions, 3 professional sports franchises including The Mighty Ducks of Anaheim, the Anaheim Angels, and Anaheim Sports Inc, a company called TiVo, over 30 hotels, 4 resorts, and Walt Disney World alone features 4 parks, 22 hotels, 3 water parks, a huge shopping marketplace, a club district, 3 golf courses, a sports complex, over 60 table restaurants, and 90 plus fast food services. Looking at all of these figures, its is apparent that Disney is a full-fledged synergy system with ways to target the public from every direction, whether from something with a specific Disney name on it, a hidden Disney company, or a company that they have an affiliation with. The general public most likely has no idea how much Disney owns, and how much they dominate the world. Their company functions like a drug that you can't seem to get rid of. For example, the new movie Monsters Inc has been widely advertised from so man different angles, that Disney profits from every direction. Promotions of this movie were made through McDonalds, and Kraft, while the television and movie companies made and distributed the movie and trailers, and the television channels allowed for viewing. The radio stations promoted the movie, while links on the different websites provided web-goers a peek at the movie as well. The recording companies made a soundtrack for the movie, video games were created, and Disney Stores all across the globe sold Monsters Inc merchandise. Hasbro and Mattel also manufactured toys to be sold in stores around the world. There were even advertisements for the movie on the rink boards at televised games for Disneys Anaheim Mighty Ducks. Becoming involved with Disney as a consumer is almost possible to avoid, since they are able to target the public from every direction, especially with company affiliates, some of which even the most astute Disney fan wouldn't know. concept of buy back shares? Advantages of company undertaking buyback? The guideline in company act 1956 regarding buy back

The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of the Companies Act,1956. These were inserted by the Companies (Amendment) Act,1999. The Securities and Exchange Board of India (SEBI) framed the SEBI(Buy Back of Securities) Regulations,1999 and the Department of Company Affairs framed the Private Limited Company and Unlisted Public company (Buy Back of Securities) rules,1999 pursuant to Section 77A(2)(f) and (g) respectively. Objectives of Buy Back: Shares may be bought back by the company on account of one or more of the following reasons i. To increase promoters holding ii. iii. iv. v. vi. Increase earning per share Rationalise the capital structure by writing off capital not represented by available assets. Support share value To thwart takeover bid To pay surplus cash not required by business

Infact the best strategy to maintain the share price in a bear run is to buy back the shares from the open market at a premium over the prevailing market price. The advantage of buy-backs is that, by boosting the share price, they give shareholders capital gains rather than income. Some companies buy back a small number of shares every year. This is an alternative to increasing the dividend. It also does not commit the company to sustaining the payment in the same way the increasing the dividend would and, again, turns the return into a capital gain rather than income. Another advantage of a share buy-back is that it gives shareholders more flexibility than a dividend as it allows shareholders to choose when, and if, to sell and realise their cash. This can also help minimise tax.

Shareholders can even, by selling the correct proportion of their holding, get exactly the same amount of cash out of the company as would have been paid if a dividend had been paid instead however the money may be taxed differently and doing this involves paying brokers commissions and other expenses of trading. Provisions under The Companies Act, 1956 Section 77A, 77AA and 77B of the Companies Act contains the rules regarding buy-back of securities. Sources for buy-back The Act provides that buy-back of shares can be financed only out of free reserves-Where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the share so purchased is required to be transferred to the capital redemption reserve and details of such transfer should be disclosed in the balance-sheet; or a. b. securities premium account; or Proceeds of any shares or other specified securities.

It is provided that no buy back of any kind of shares or other specifies securities can be made out of the proceeds of the same kind of shares or same kind of other securities as it will frustrate the purpose sought to be achieved by an issue and will make no sense. It can however be used for buy-back of another kind of security. Pre-requisites of a valid buy-back The Companies Act provides that a company can buy-back its shares only when[9]: a. b. c. It is authorized by its Articles of Association. If no such provision exists, the Articles should be amended following the procedure laid down in section 31. A special resolution has been passed in general meeting of the company authorizing the buy-back. A buy-back of the total paid-up capital and the free reserves has been made by the Board of Directors by means of a Board resolution passed at its meeting not exceeding 10% of the total paid-up equity capital and free reserves of the company and the Board exercises this power only if it had not made an offer for the buy-back of the share on its authority during the preceding 365 days. The overall limit to which buy-back of securities may be resorted to by a company is restricted to 25% of the companys paid-up capital and free reserves. The buy-back debt-equity ratio is within the permissible 2:1 range. The Central Government is empowered to relax the debt-equity ratio in respect of a class of companies but not in respect of any particular company. The impugned shares/securities must be fully paid-up. The buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the SEBI (Buy-back of Securities) Regulations, 1998. The buy-back in respect of shares or other specified securities other than those listed on any recognized stock exchange shall additionally comply with the provisions of the Private Limited Company and Unlisted Public Company (Buy-back of Securities) Rules, 1999.

d. e.

f. g. h.

Why business fails? symptoms of business failure? Altmans bankrupt score Why business fails Starting a business, whether it be from home, or in an office somewhere, may sound like the perfect solution to your working blues, but unless youre committed to making it work, you can find yourself on the losing end real quick. Businesses fail for many reasons. It is important to understand those reasons so that you can decide whether or not you are up to the challenge. Those reasons include: 1. FearWhether it is the fear of success or the fear of failure, fear of stepping out of ones comfort zone to try something new, or the fear of trial and error. Fear can freeze a person dead in his or her tracks. 2. Failure to plan. 3. Lack of funding. 4. Procrastination 5. Excuses. Especially making an excuse for any and everything that causes you to stumble. 6. Doing busy work. Keeping busy doing unimportant tasks. 7. Inability to delegate tasks. Sometimes delegation saves your business. If you have a weakness, hire someone who could turn that weakness into a strength. Use others to complete simple time consuming tasks so that you can do other things. 8. Failure to Research. 9. Failure to Market. 10. An inconsistent advertising campaign. It is better to have a ton of small ads on a regular basis than one large ad on a monthly or yearly basis. 11. Your pricing is too low, thus resulting in a negative cash flow. 12. Bad accounting practices. 13. Choosing quantity over quality. Cutting corners is bad business sense. 14. Dishonesty. 15. Not fixing mistakes. 16. Not completing tasks in a timely manner. 17. Inability to follow-up. You should always follow-up by email, snail mail, or phone. 18. Not listening to client or customer. Talking too much. 19. Spending too little. It takes money to make money. 20. Spending too much. Purchasing items when you dont need them, upgrading when the older version will do, letting suppliers talk you into things you cannot afford, and not budgeting. 21. Being unprepared for fluctuations in business. Boom times when demands are high as well as slow times when you are struggling to get by. (Put money away during boom times to prepare for slow times.) 22. Lack of diversification. If you only offer one product or service, losing it can destroy your business. 23. Reputation. While a good reputation will gain you tons of business, a bad reputation could close your business. 24. Cockiness. There is nothing wrong with feeling great about your products, services, or accomplishments. Just dont let pride and arrogance destroy your customer relations.

25. Discouragement. Giving in to your feelings of discouragement, when things do not work out the way you planned or succeed as fast as you thought. Also allowing others to feed on any discouragement you may already feel.

symptoms Of Failure Failure to recognise and clearly define exactly what you want. Procrastination, with or without cause (usually backed up with a formidable array of alibis and excuses). Lack of interest in acquiring specialised knowledge. Indecision, the habit of 'passing the buck' on all occasions, instead of facing issues squarely (also backed by alibis). The habit of relying upon alibis instead of creating definite plans for the solution of problems. Self-satisfaction. There is but little remedy for this affliction, and no hope for those who suffer from it. Indifference, usually reflected in your readiness to compromise on all occasions, rather than meet opposition and fight it. The habit of blaming others for your mistakes, and accepting unfavourable circumstances as being unavoidable. Weakness of desire due to neglect in the choice of motives that impel action. Willingness, even eagerness, to quit at the first sign of defeat (based upon one or more of the six basic fears). Lack of organised plans, placed in writing where they may be analysed. The habit of neglecting to move on ideas, or to grasp opportunity when it presents itself. Wishing instead of willing The habit of compromising with poverty instead of aiming at riches - a general absence of ambition to be, to do and to own. Searching for all the short-cuts to riches, trying to get without giving a fair equivalent, usually reflected in the habit of gambling or endeavouring to drive 'sharp' bargains. Fear of criticism, failure to create plans and to put them into action

Bankruptcy The Z-score formula for predicting bankruptcy was published in 1968 by Edward I. Altman, who was, at the time, an Assistant Professor of Finance at New York University. The formula may be used to predict the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. Data Needed: (Easily found in your company's financial statements.) Earnings before taxes Total assets Net Sales Market Value of Equity Total Liabilities Working Capital Retained Earnings The worksheet will indicate: The short-term potential for financial problems at your company. The Expert: Edward I. Altman, Professor and Vice-Director of New York University's Salomon Center, Leonard N. Stern School of Business. Dr. Altman is known as the founding father of using statistical techniques to predict company failure. He developed the Z-Score analysis almost 30 years ago, and is the author of several books, including The Z-Score Bankruptcy Model: Past, Present, and Future (New York: John Wiley & Sons, 1977), and Corporate Financial Distress and Bankruptcy, 2nd edition (New York: John Wiley & Sons, 1993). The Analysis: The Z-score was developed from an analysis of 33 Chapter X-bankrupt manufacturing companies with average assets of $6.4 million, and, as controls, another 33 companies with assets between $1 million and $25 million.

Altman's Z-score calculates five ratios: 1. return on total assets, 2. sales to total assets, 3. equity to debt, 4. working capital to total assets, and 5. retained earnings to total assets.

What Does Leveraged Buyout - LBO Mean? The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. Takeover of a company using the acquired firm's assets and cash flow to obtain financing. Typically, these transactions are done by conglomerates selling or spinning off an unwanted subsidiary to the company's managers and outside investors. The buyers of an LBO financing are said to take private the target company. Leveraged buyouts are risky for the buyers if the purchase is highly leveraged. An LBO can be protected from volatile interest rates by an Interest Rate Swap, locking in a fixed interest rate, or an interest rate Cap which prevents the borrowing cost from rising above a certain level. LBOs also have been financed with high-yield debt, or Junk Bonds and have also been done with the interest rate capped at a fixed level and interest costs above the cap added to the principal. For commercial banks, LBOs are attractive because these financings have large up-front fees. They also fill the gap in corporate lending created when large corporations begin using commercial paper and corporate bonds in place of bank loans. Transaction Structure Below is a simple diagram of an LBO structure. The new investors (e.g. and LBO firm or management of the target) form a new corporation for the purpose of acquiring the target. The target becomes a subsidiary of NewCo, or NewCo and the target can merge.

LBO Candidate Criteria Given the proportion of debt used in financing a transaction, a financial buyer's interest in an LBO candidate depends on the existence of, or the opportunity to improve upon, a number of factors. Specific criteria for a good LBO candidate include: Steady and predictable cash flow Divestible assets Clean balance sheet with little debt Strong management team Strong, defensible market position Viable exit strategy Limited working capital requirements Synergy opportunities Minimal future capital requirements Potential for expense reduction

Heavy asset base for loan collateral

q.6 defence tacties against takeover attempt white knight crown jewel green mail poison pills Poison Pills To avoid hostile takeovers, lawyers created this contractual mechanics that strengthen target company. It's a generic name that makes reference to some protection against unsolicited tender offer. One usual poison pill inside a Corporation Statement is the clause which triggers shareholders rights to buy more company stocks in case of attack. Such action can make severe differences for the raider. If shareholders do really buy more stocks of company with advantaged price, it will be harder to acquire the company control for sure. Today it's not some plain matter. There are advantages as well disadvantages. A poison pill really seems to make raider's plans a little more complicated. But nowadays it's accused to further protect management Counsel and directors. Some conservative corporations still dismiss this kind of protection. The main idea is that, far the best defense strategy is to keep shares high priced, and well valued. This means making the corporation performance its own takeover defense. Problems of Poison Pills Among the problems, theres always the high cost generated by poison pills. It also can keep good investors away, and can make some future healthy partnership more complex. It means that any joint venture for example will have to bypass the approval of all investors, in a more sensitive way. Disarm a poison pill is also complicated. Generating rights its easier than keep them away of the company. Once armed with a poison pill, the corporation will always have to face investors satisfaction with overall conduct. Anytime, whenever a merger occurs, some investor can make all the process a lot more complex White Knight Another fortune way to handle a hostile takeover is through White Knight bidders. Competition is ever a serious factor in any market field. Usually players of some specific market, know each other for a long time, even if from different countries. They know each ones history, strategy, strength, advantages, clients, bankers and legal supporters. Meaning beyond similarities or not, there're communities around theses companies. An unsolicited bidder more than an offensiveness, has a chain reaction over that entire market field. Even traditional corporations are not free of billion raiders that wants to run the market. Or maybe, it's about a bidder without any common work concepts that could make promise a good union. Several are the reasons, an hostile act itself seems not something friendly. Under these circumstances, investment bankers can achieve a White Knight raider to also play against the unsolicited takeover. The White Knight presence and play, may have at least two main effects. First it can push the hostile takeover bid till the edge, and break-even point. Second, if result in attack quit, a new megacorporation can surge, stronger than ever. For the target company is a good strategy, once it makes takeover defense mostly to be decided in the stock exchange, between bankers, traders, analysts. Commonly, if results a White Knight union, sometimes it's just an alliance already studied and waited for both. Anticipation of alliances can be unexpected but nevertheless, market may prove it was right. Greenmail

This practice is not a kind of takeover defense in terms of protecting a corporation. Means much more an attitude of recognizing a raider force, and premium to be free of the attack. There's a long controversy around it, once its not fair for shareholders to pay premium for raiders. The discussion shakes all shareholders, once sometimes they are not the management one whoever decide theses payments. If paid, it can bring the certainty of takeover free at least from that bidder. But it has effects, and some studies conclude that as consequence shares has a decline. Some countries forbid such hostile takeover behave. Its a wide discussion ended in Courts, whenever shareholders interests and vote face takeover defense of management and controllers. The great controversy is about fairness of paying these millionaire premiums for attackers. If it is really the way to be. For the free market standpoint, it can push target company toward. By considering such possibility, some companies do really make strong needed restructuring. Stepping through some reforms that can improve its performance. Instead of letting the corporation by its own, pressure for necessary measures that can be healthy. Greenmail pushes aside that hostile bidder. But by a millionaire premium it can further boost interest of raiders and megainvestors all over, searching for a good opportunity. For that reason qualify it as a defense may be not quite proper. It recognizes an unsolicited offer and risk, and shareholders may take a burden of something they're apart. crown jewel In business, when a company is threatened with takeover, the crown jewel defense is a strategy in which the target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity. Consequently, the unfriendly bidder is less attracted to the company assets. Other effects include dilution of holdings of the acquirer, making the takeover uneconomical to third parties, and adverse influence of current share prices. Shorts note mezzanine financing in corporate finance, a leveraged buyout (LBO) or restructuring financed through subordinated debt, such as preferred stock or convertible debentures. This type of financing is very popular in merger & acquisitions, as the transaction is financed by expanding equity, as opposed to debt. Holders of the securities are also assured of having a greater role in managing the resulting company. Second or third level financing of companies financed by venture capital. The mezzanine financing is senior to the venture capital financing, but junior to bank financing, and adds creditworthiness to the firm. It generally is used as an intermediate stage financing, preceding the company's initial public offering (IPO), and is considered less risky than start-up financing. n LBO deals, mezzanine financing is an intermediate form of financing between debt and equity. Mezzanine debt is subordinate to bank debt but senior to equity, is unlisted and generally subscribed by specialist funds. It is generally backed by bonds with share warrants. Mezzanine funding offers three advantages: : Optimising managers' stake in the company's equity : predetermine the dilution resulting from the warrants in advance and thus eliminating the risk of an unexpected strong dilution (unlike convertible bonds frequently subscribed by investors and convertible into equity depending on its performance). The percentage of equity to which share warrant holders are entitled is determined at the outset and not dependent in any way on the company's performanceThe mezzanine component, by virtue of its nature and maturity, is considered as equity :

the capital repayable is subordinate to repayment of the senior bank debt, and impacts only marginally on operating cash flow and hence on the company's development capacity repayment at maturity of the principal and the bulk of the interest. spin-off In a pure spin-off, a parent company distributes 100% of its ownership interests in a subsidiary operation as a dividend to its existing shareholders. After the spin-off, there are two separate, publicly held firms that have exactly the same shareholder base. This procedure stands in contrast to an initial public offering (IPO), in which the parent company is actually selling (rather than giving away) some or all of its ownership interests in a division. The spin-off process is a fundamentally inefficient method of distributing stock to people who may not necessarily want it. For the most part, investors were investing in the parent companies business. Once the shares are distributed, often they are sold without regard to price or fundamental value. This tends to depress the stock initially. In addition, institutions typically are sellers of spin-off stocks for various reasons (too small, no dividend, no research, etc.). Index funds are forced to sell the spin indiscriminately if the company is not included in a particular index. This type of selling can create excellent opportunities for the astute investor to uncover good businesses at favorable prices. Often, after the spin, freed from a large corporate parent, pent-up entrepreneurial forces are unleashed. The combination of accountability, responsibility, and more direct incentives (stock options) typically shows up in the operating performance post spin. vertical integration Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that companys or entitys power in the marketplace. Simply said, every single product that you can think of has a big life cycle. While you might recognize the product with the Brand name printed on it, many companies are involved in developing that product. These companies are necessarily not part of the brand you see. Example of vertical integration: while you are relaxing on the beach sipping chilled cold drink, the brand that you see on the bottle is the producer of the drink but not necessarily the maker of the bottles that carry these drinks. This task of creating bottles is outsourced to someone who can do it better and at a cheaper cost. But once the company achieves significant scale it might plan to produce the bottles itself as it might have its own advantages (discussed below). This is what we call vertical integration. The company tries to get more things under their reign to gain more control over the profits the product / service delivers. Types of Vertical Integrations: There are basically 3 classifications of Vertical Integration namely: 1. Backward integration The example discussed above where in the company tries to own an input product company. Like a car company owning a company which makes tires. 2. Forward integration Where the business tries to control the post production areas, namely the distribution network. Like a mobile company opening its own Mobile retail chain. 3. Balanced integration You guessed it right, a mix of the above two. A balanced strategy to take advantages of both the worlds.

pension parachute A pension provision that allows a company to take excess pension funds during a hostile takeover and use them to benefit the pension beneficiaries in some manner. This action prevents the company initiating the hostile takeover from using excess pension funds to finance the hostile acquisition and also serves to ensure some protection for the pension participants. A pension parachute is similar to a poison pill because it deters hostile takeovers Related to "Pension parachute" Trading and Investments Terms Ratio - The relation that one quantity bears to another of the same kind, with respect to magnitude or numerical value. Corporation - A LEGAL entity that is separate and distinct from its owners. A Corporation is allowed to own assets, incur liabilities, and Sell securities, among other things. Liability - A financial obligation, or the Cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation. Pension plan - A fund that is established for the payment of Retirement benefits. Funded pension plan - A Pension plan in which all liabilities, including payments to be made to pensioners in the immediate future, are completely funded. Advance funded pension plan - A Pension plan in which funds are set aside in Advance of the date of retirement. Overfunded pension plan - A Pension plan that has a positive surplus (i.e., Assets exceed liabilities). Salary Reduction Simplified Employee Pension Plan (SARSEP) - A low-cost, no-frills version of a 401(k) employee savings plan available to companies with 25 or fewer employees. It allows employees to make pretax contributions to their IRAs through Salary reduction each year. The Small Business Job Protection Act of 1996 replaced SARSEPs with SIMPLE (Savings Incentive Match Plan for Employees) plans. Existing SARSEPs were allowed to add new participants, but new plans could not be formed after December 31, 1996. Simplified Employee Pension (SEP) plan - A Pension plan in which both the employee and the employer contribute to an individual Retirement account. Also available to the self-employed. Unfunded pension plan - Provides for the employer to pay Out amounts to retirees or beneficiaries as and when they are needed. There is no Money put aside On a regular basis. Instead, it is taken out of current income. Underfunded pension plan - A Pension plan that has a negative surplus (i.e., liabilities exceed assets). Noncontributory pension plan - A Pension plan that is fully paid for by the employer, requiring no employee contributions. Contingent pension liability - Under ERISA, a Firm is liable to its Pension plan participants for Up to 39% of the Net worth of the firm. Pension Benefit Guaranty Corporation (PBGC) - A federal Agency that insures the vested benefits of Pension plan participants (established in 1974 by the ERISA legislation). Pension fund - A fund Set up to pay the pension benefits of a company's workers after retirement. Golden parachute - Compensation paid to top-level Management by a target Firm if a Takeover occurs. S&P - Standard & Poor's Corporation.

Pension sponsors - Organizations that have established a pension plan. Pension reversion - Termination of an overfunded defined benefit Pension plan and replacement of it with a life Insurance company-sponsored fixed Annuity plan. Pension liabilities - Future liabilities resulting from pension commitments made by a Advance - Increase in the Market price of stocks, bonds, commodities, or other

when n wht circumstances the SEBI has attempet to protect the interest of the share holder of company SEBI will recommend to the Ministry of Corporate Affairs to suitably amend Clause 166 of the Companies Bill, 2009 to disallow interested shareholders from voting on the special resolution of the prescribed related party transaction. This will protect small and diversified shareholders in listed companies from abusive related party transactions. This view was taken based on the learning from the investigation in the matter of Satyam Computer Services Limited. Following the Satyam episode, numerous recommendations were made for strengthening the regime governing related party transactions (RPTs), particularly in listed companies. This is not surprising given the corporate structure of Indian companies, where group holding structures, pyramiding and tunneling are commonplace with significant influence wielded by controlling shareholders (or promoters). Given such structures, RPTs are inevitable. However, the current legal regime appears to focus almost entirely on disclosure of RPTs. For example, there is great emphasis on disclosure of related party transactions in financial statements of companies, and most of the detail regarding disclosures is governed by the relevant accounting standards. There is little prohibition or restriction on the ability of companies to carry out RPTs. Moreover, there are arguably inherent deficiencies in current law being able to capture RPTs, and particularly with controlling shareholders. First, controlling shareholders are not subject to conflicts of interest. Unlike directors, company law allows controlling shareholders to vote on resolutions even in situations involving conflicts. Second, company law does not foist controlling shareholders with duties (such as fiduciary duties). In that sense, they can exercise their voting powers in their own interests rather than in the interest of the company, as they are not in any fiduciary capacity. SEBIs proposal in yesterdays board meeting seeks to address the first issue above, i.e. to impose conflict of interest on shareholders. This is a welcome move because it addresses the realities of Indian corporate ownership structures where RPTs are rampant. In the post-Satyam scenario, the issue of RPTs has perhaps received less attention than it deserves. Spotlight has been thrown on other matters of corporate governance such as board independence, and role and liability of auditors. The proposals have arguably resulted in a scenario by which, if the recommendations of the Task Force are accepted, there would be regulatory micromanagement of corporate boards in India. SEBIs current proposal does well to renew the focus back to the issue of RPTs. Of course, like any legislative proposal, the devil lies in the detail. Questions will arise as to how to define an interested shareholder, related party transactions and whether there should be thresholds of materiality, and the like. If the proposal is accepted, these issues will have to be carefully framed and legislated. Curiously enough, the impetus for introducing the concept of an interested shareholder has emanated from SEBI (as the securities regulator) rather than at the legislative level (involving company lawmakers). SEBIs efforts have been consistent even in past practice where it required interested shareholders to abstain from voting: e.g. when it granted certain exemptions under the Takeover Regulations, when it issued the Delisting Guidelines (which require 2/3rds majority of disinterested shareholders), and in certain other orders it has passed where it expressed the desire to see disinterested shareholding voting (see one instance here). While SEBI possesses the power to regulate listed companies (and has been exercising this power as indicated above), its plea to the Ministry of Corporate Affairs signals an interest in universal applicability of the rule to even unlisted companies.

Objectives of SEBI: As an entity in the market, SEBI works with the following objectives: 1. In order to develop the securities market in India. 2. To promote Investors Interest. 3. To make rules and regulations for the securities market in India. The Securities and Exchange Board of India (SEBI) has been mandated to protect the interests of investors in securities and to promote the development of and to regulate the securities market so as to establish a dynamic and efficient Securities Market contributing to Indian Economy. SEBI strongly believes that investors are the backbone of the securities market. They not only determine the level of activity in the securities market but also the level of activity in the economy. However, many investors may not possess adequate expertise/knowledge to take informed investment decisions. Some of them may not be aware of the complete risk-return profile of the different investment options. Some investors may not be fully aware of the precautions they should take while dealing with market intermediaries and dealing in different securities. They may not be familiar with the market mechanism and the practices as well as their rights and obligations. 1. What are my rights as a shareholder? To receive the share certificates, on allotment or transfer (if opted for transaction in physical mode) as the case may be, in due time. To receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss account and the Auditors Report. To participate and vote in general meetings either personally or through proxy. To receive dividends in due time once approved in general meetings. To receive corporate benefits like rights, bonus, etc. once approved. To apply to Company Law Board (CLB) to call or direct the Annual General Meeting. To inspect the minute books of the general meetings and to receive copies thereof. To proceed against the company by way of civil or criminal proceedings. To apply for the winding up of the company. To receive the residual proceeds. To receive offer to subscribe to rights shares in case of further issues of shares. To receive offer under takeover or buyback offer under SEBI Regulations. Besides the above rights, which you enjoy as an individual shareholder, you also enjoy the following rights as a group: To requisite an Extra-ordinary General meeting. To demand a poll on any resolution. To apply to CLB to investigate the affairs of the company.

 To apply to CLB for relief in cases of oppression and/or mismanagement What are my responsibilities as a security holder? while you may be happy to note that you have so many rights as a stakeholder in the company that should not lead you to Complacency; because you have also certain responsibilities to discharge. To be specific. To remain informed. To be vigilant. To participate and vote in general meetings. To exercise your rights on your own or as a group.

.lbo transaction structure advantages n disadva.of lbo

Advantages and Disadvantages

A successful LBO can provide a small business with a number of advantages. For one thing, it can increase management commitment and effort because they have greater equity stake in the company. In a publicly traded company, managers typically own only a small percentage of the common shares, and therefore can participate in only a small fraction of the gains resulting from improved managerial performance. After an LBO, however, executives can realize substantial financial gains from enhanced performance.

This improvement in financial incentives for the firm's managers should result in greater effort on the part of management. Similarly, when employees are involved in an LBO, their increased stake in the company's success tends to improve their productivity and loyalty. Another potential advantage is that LBOs can often act to revitalize a mature company. In addition, by increasing the company's capitalization, an LBO may enable it to improve its market position.

Successful LBOs also tend to create value for a variety of parties. For example, empirical studies indicate that the firms' shareholders can earn large positive abnormal returns from leveraged buyouts. Similarly, the post-buyout investors in these transactions often earn large excess returns over the period from the buyout completion date to the date of an initial public offering or resale.

Not all LBOs are successful, however, so there are also some potential disadvantages to consider. If the company's cash flow and the sale of assets are insufficient to meet the interest payments arising from its high levels of debt, the LBO is likely to fail and the company may go bankrupt. Attempting an LBO can be particularly dangerous for companies that are vulnerable to industry competition or volatility in the overall economy. If the company does fail following an LBO, this can cause significant problems for employees and suppliers, as lenders are usually in a better position to collect their money. Another disadvantage is that paying high interest rates on LBO debt can damage a company's credit rating. Finally, it is possible that management may propose an LBO only for short-term personal profit.