Master in Business Administration Semester 3 MF0011 Mergers and Acquisitions - 4 Credits

(Book ID: B1209) Assignment Set- 1 (60 Marks)

Q.1 What are the basic steps in strategic planning for a merger? Ans: Mergers & Acquisitions are strategic decisions which are taken by the management of any company after thorough examination of many important facts and considerations. Since decisions regarding Mergers & Acquisitions, like capital budgeting decisions are irreversible in nature important that due attention must be paid to some basic issues before planning about it. Hence the strategic planning can be broken down into five steps: Step 1: Pre Acquisition Review The first step is related with the assessment of companys own situation to determine if a Merger & Acquisition strategy should be implemented or is there any other alternative? If a company expects difficulty in the future when it comes to maintaining growth, core competencies, market share, return on capital, or other key performance variable, then a Merger & Acquisition (M & A) program may be necessary. If a company is undervalued or fails to protect its valuation, it may find itself the target of a merger. Therefore, the preacquisition review will include issues like the projected growth rate, inability of the company to sustain its market share in the future because of the potential threat from its competitor firms, under valuation of the company etc. The company must address to a fundamental question. Would the Merger help improve the situation regarding the above or not? Will it affect the valuation in a positive manner? Step 2: Searching and Screening of the targets The second step in the Merger & Acquisition process is to search for those companies which can be the potential takeover candidates. It is important for the merging company to see whether the company to be acquired has strategic compatibility with the acquiring company or not. Compatibility and fit should be assessed across a range of criteria size, kind of business, capital structure, core competencies, etc. Searching and screening process should and must be performed by the management of the Acquiring Company without taking the help of any outside agency. Dependence on external firms should be kept minimum however if it is important to take the help of any outside agency.
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Step 3: Valuation of the target company The third step in the Merger & Acquisition process is to perform a thorough and detailed analysis of the target company. Acquiring company must confirm that the Target Company is truly a good fit with the acquiring company. This requires a thorough review of operational, strategic, financial, and other aspects of the Target Company. This detail review is called due diligence. Due diligence is the process of identifying and confirming or disconfirming the business reasons for the proposed capital transaction. Various factors like, customer needs, strategic fit, shareholder value etc is at the core of the analysis. Several functions are involved in due diligence related to potential acquisitions, including strategy, finance, legal, marketing, operations, human resources, and internal audit services. The direction of due diligence efforts depends on what the company expects to gain from the transaction: employees, customers, processes, products, or services. Due Diligence is initiated once a target company has been selected. The main objective is to identify various synergy values that can be realized through an M & A of the Target Company. A key aspect of due diligence is the valuation of the target company. In the preliminary phases of M & A. Total value of the company is calculated keeping in mind the value of the synergy expected from the combination and costs involved in the transaction. An example should give an idea of the calculation involved. Value of Acquiring Company = Rs. 500 lakh Value of Target Company = Rs. 250 lakh Value of Synergies as per Phase I Due Diligence = Rs. 150 lakh M & A Costs = Rs. 60 lakh Total Value of Combined Company = Value of the acquiring company + Value of the target company + Value of the Synergy M & A cost Hence Total value of the combined company = 500 + 250 + 150 60 = Rs 840 lakh. Step 4: Negotiation After selecting the target company its time to start the process of negotiating. A negotiation plan is developed based on several key questions: How much resistance Acquiring Company is expected to encounter from the Target Company? What are the benefits of the Merger for the Target Company? What will be the acquiring companys bidding strategy? How much acquiring company should offer in the first round of bidding? The most common approach to acquire a company is for both companies to reach an agreement concerning the Merger & Acquisition. The idea is to go for a negotiated merger. The negotiated merger should be the preferred approach to a M & A since when both the
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companys agree to the deal then there are chances that the process will be a smooth one and will go a long way in making the merger a successful one. Step 5: Post Merger Integration If everything goes as per planning, the two companies announce an agreement to merge the two companies. This leads to the fifth and final phase within the M & A Process, the integration of the two companies. Every company is different in terms of operations, in terms of structure, in terms of culture, in terms of strategies etc. The Post Merger Integration Phase is the most difficult phase within the M & A Process. It is the responsibility of the management of the two companies to bring the two companies together and make the whole thing work. This requires extensive planning and design throughout the combined organization. If post merger integration is successful, then it should result in the generation of synergy and that is the final objective of any Merger & Acquisition program.

Q.2 What are the sources of operating synergy? Ans: Some sources of synergy are: (a) Operating economies; (b) Market power; (c) Financial gains; and (d) Others. Each of the above sources is described in details below: (a) Economies of scale Horizontal mergers (acquisition of a company in a similar line of business) are often claimed to reduce costs and therefore increase profits due to economies of scale. These can occur in the production, marketing or finance areas. Note that these gains are not automatic and diseconomies of scale may also be experienced. These benefits are sometimes also claimed for conglomerate mergers (acquisition of companies in unrelated areas of business) in financial and marketing costs. (b) Economies of vertical integration

Some acquisitions involve buying out other companies in the same production chain, eg, a manufacturer buying out a raw material supplier or a retailer. This can increase profits by cutting out the middle man. (c) Complementary resources It is sometimes argued that by combining the strengths of two companies a synergistic result can be obtained. For example, combining a company specializing in research and development with a company strong in the marketing area could lead to gains. (d) Elimination of inefficiency If the victim company is badly managed its performance and hence its value can be improved by the elimination of inefficiencies. Improvements could be obtained in the areas of production, marketing and finance.

Q.3 Explain the process of a leveraged buyout. Ans: The process typically starts with a private equity firm looking to buy a company using a combination of equity and debt. The interesting twist in the LBO structure is the use of the acquired company's assets to secure a portion of the debt used in the buyout. The private equity firm also uses the cash generated by the acquired company to pay down the debt. A successful leveraged buyout results in abnormally high returns to equity holders. Once successful, equity holders typically decide to execute an exit strategy that includes options such as:

Recapitalization - by replacing equity with additional debt, it may be possible to extract even more money from the acquired company. Complete Sale - it's possible to sell the entire company if a strategic match can be found among potential buyers. Initial Public Offerings - while it's not always possible to sell the entire company, an IPO allows equity holders to realize a gain on their initial investment.

Transaction Financing The cost of the LBO can include transaction fees, lender's fees, bank fees, and sponsor costs. Most leveraged buyouts involve three sources of funding: senior debt, mezzanine debt, and private equity.

Private Equity - typically funds 25% of the total transaction. This is also the most expensive source of financing. Sources of this equity can include the target company's management team, a pool of buyout funds held by LBO firms, as well as investment banks. Equity structures may include preferred stock held by the LBO firm, while employees and management teams receive common stock.
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Mezzanine Financing - typically funding 25% of the total transaction, this type of financing got its name because it fills the gap between equity and senior debt. Mezzanine financing is junior to all other debt. For this reason, it carries a higher level of risk and interest rate to compensate investors for that risk. Senior Debt - also known as term debt, this type of debt will usually fund approximately 50% of the total transaction. This debt is frequently secured by assets of the acquired company, and is the least costly way to fund the buyout.

Identifying LBO Candidates At a high level, potential LBO candidates would be undervalued stocks with strong cash flows, and relatively low debt. Other characteristics of target companies include:

Large asset base Low future capital requirements Potential for process improvements or cost reductions Strong market position Relatively low enterprise value

Finally, the ideal leveraged buyout candidate would be a company that can be easily separated into logical subdivisions and / or presents the acquirer with a clear exit strategy.

Q.4 What are the cultural aspects involved in a merger. Give sufficient examples. Ans: Companies are joined nearly every day, but often two companies end up weaker together than they were separately. Indeed, a KPMG study showed that 83% of mergers and acquisitions failed to produce any benefits - and over half actually ended up reducing the value of the companies involved. One of the main problems is that mergers and acquisitions are often planned and executed based on perceived cost savings or market synergies; rarely are the people and cultural issues considered. Yet, it is the people who decide whether an acquisition or merger works. Customer and employee reactions determine whether the newly combined organization will sink or swim. Before the merger Before the merger takes place, the leaders of both organizations - at least, of the dominant one - should have a strategy mapped out, including communications to employees and customers, where layoffs will take place (if any do), and how the cultures should be merged. A SWOT (strengths, weaknesses, opportunities, and threats) analysis should be done for the combined company. If possible, a brief culture survey (preferably done via interviews as well as paper or Web/e-mail) should be undertaken in both companies to discover what the cultural differences are. Sometimes this will be obvious in some aspects -e.g. one culture values teams and bottom-up innovation, the other favors command-and-control tactics - but
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not in others, such as how and whether individuals and teams are rewarded for innovations, how failure is dealt with, whether conflict is addressed openly, etc. This will prevent disconcerting delays between the announcement and the implementation of the merger/takeover. If the real purpose of the merger is to acquire another companys assets, in terms of a particular product or brand, its factories or patents, etc., that should be acknowledged and dealt with up front. If employees are fooled at first by pleasant words, they will react more strongly when those words become taunts. Finally, before the merger or acquisition takes place, the leadership teams should consider the non-financial issues. Will people in the two companies be able to work together? Will acquiring a company, or merging with it, destroy the properties or drive away the talent that made it worth having? Can a simple partnership, alliance, or even stock ownership without integration provide more benefits than combining the two companies? These issues may be overlooked by the leadership teams just as they are often ignored or downplayed by investment bankers who want to do the deal. Power relationships In many ways, it makes sense to consider mergers in the same light as acquisitions. It has become a truism that there is no such thing as a merger one side will come out dominant in each function, even in the friendliest of mergers. There can, in the end, only be one CEO, one head of each function, one head of each department. Therefore, we will generally consider mergers and acquisitions to be interchangeable. Power issues should be confronted directly to avoid drawn-out conflicts and confusion for employees. Conflicts must be controlled but addressed, to avoid protracted turf wars, lasting bitterness, and employee withdrawal and retention. (Withdrawal can be psychological as well as physical - employees can simply not go that extra mile, and do the absolute minimum required of them. They can also sabotage change efforts and new initiatives. This can last for many years, long after outsiders have forgotten about the merger.) Personal issues In most takeovers, both companies staff lose some productivity (and people) as employees divert their attention to their own place in the future, merged company. Will they still have a job? Will they have advancement prospects? What will be their role? Will the company gain or lose? This is the time when the best employees may jump ship, because they will find it easiest to get jobs elsewhere which strengthens the competition even as it weakens the integrated company. Mergers can be a profoundly demoralizing time, especially if communications from the leaders are sparse or misleading. Many agree that the best way to handle this is to constantly communicate to everyone in the company, using a variety of methods - face to face included so that people understand the reasons for the acquisition, the combined companies strategy, and how the two companies will combine. If layoffs need to be made, they should be announced quickly and directly, again with the reasons and rationale clearly expressed.
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As people devote more time to exchanging rumors, trying to find out their status, and dwelling on the change, productivity tends to drop. In the absence of credible, continued information, the grapevine will spread inaccurate rumors with amazing ease. For that reason, the transition should be as short as possible. If there are layoffs, the role and situation of the survivors should be addressed. There is a separate line of research on this, which we will not delve into. As the integration of the companys proceeds, many may feel that their past ways of working and their contributions are not valued. In addition to celebrating success, the company must show in word and in deed that it value the best of the old ways, the tradition and heritage of the company being taken over. If the new organization shows total disregard for the heritage of groups being taken over, people will take longer to get over the shock of transition, and may sabotage change or simply vote with their feet. Cultural issues Culture - the shared values, beliefs, and preferred ways to behave - is hard to control, and in most mergers, it seems that nobody tries very hard to do it. The end result is that the culture usually is not as productive as it should be in the combined organization, moulded primarily by the leaders actions and politically adept or powerful people in each organization. The goal in a merger is for the better of two companies to be preserved, resulting in synergy and continued profit. This applies to culture as well as to operational processes and technologies. The cultures of each company should be carefully examined, and care taken to guide the combined organizations culture so it incorporates the best of each. One interesting note on cultural change is that it often seems to come about only when an organization feels that its very survival is threatened. A merger or acquisition provides a fine opportunity for change! The role of organizational development When an OD consultant is brought into the merger/acquisition process, there are a number of roles they can play: Helping the leaders to agree on a clear and specific set of goals for the merger. Setting up measures helps the leadership team to focus on tangible, measurable results, which brings misunderstandings and con- fiict into the open. Measurement is also an excellent communication tool, since it is an action which gives the words more credibility. Measuring the results at a number of milestones can also point to potential problems before they become crises, helping to make the merger/acquisition smoother and increasing the likelihood of success. It also helps to keep leaders focused on a balanced set of issues. Scenario planning - will the merger work if there is a market decline? What are the likely responses of customers and regulators? We wonder if, in the Daimler-Benz takeover of Chrysler, anyone considered reactions to Chrysler no longer being an American company, including a loss of sales (since most of its customers are in the United States) and the delisting from many indexed mutual funds. The 2001 power crises in California were also seen
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as a result of lack of scenario planning - in this case, testing the assumption that natural gas prices would stay fiat. The OD consultant should not usually lead the scenario planning, but they should be there as a process consultant to ensure that every team members contribution is heard, and that people are honest with each other and with themselves. (If that sounds too touchy-feely, just think about the plight of the California utilities). Exploring options - are there other ways to accomplish the same goals without a merger? Again, going back to Chrysler, the company was seeking international expansion and financial security. A partnership with Daimler-Benz, or acquiring an Asian or European automaker, would probably have served the company more than becoming a division of a culturally very different conglomerate. Once more, the OD consultant may be most effective as a process consultant rather than as a leader. Investigating assumptions - while usually not a separate exercise, the OD consultant, as an outsider, is in a unique position to bring out hidden assumptions. This should be done continuously throughout the process, though scenario planning and exploring options are expressly designed to explore and test assumptions. Sometimes, brief tactical surveys can be taken to test assumptions; sometimes, questions are enough. Communication - ensuring that a steady stream of information is released by the organizations leaders; keeping that information balanced, direct, clear, and accurate; and preventing undesirable subtexts from being communicated. The OD consultant should also probe leaders when their words and actions contradict each other, to clarify one or change the other. Rewards - compensation systems are one thing; intangible rewards are another. Research shows that most people are generally not motivated by money, though they may take a job (or keep a job) for financial reasons. Even where bonuses or profit-sharing help to increase motivation, the money itself is often symbolic, a measuring stick for achievement. The OD professional should help the organization to set up milestones and celebrate small and large successes along the route to integration, so that people not only feel progress, but also feel that their achievements are being rewarded. Otherwise, integration may seem like a long, long road. Cultural assessment - clarifying each organizations culture to make the task of integration easier, and to ensure that communications and actions do not accidentally because more harm than good. Cultural change - working with both organizations to clarify their shared vision of what the culture should be, and then working to make it that way. Johnson & Johnson maintains a shared culture among a large number of companies, some acquired, some home-grown; they do it by having a clear, shared vision and values, and by working with newly acquired firms to ensure that their culture is brought to the J&J way. Leader coaching to integrate the leadership team, address conflicts, and assure mutual involvement and dedication to the merging process. OD professionals should work at every level of the organization where the merger is taking effect. The goal is to build the ability of
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the leaders to communicate their intentions accurately, build trust, and manage conflict and tension. Strong leader credibility is key to successful integration. Working with process teams to identify the best practices in each organization and assure that they are not overtaken by less effective standard procedures from the dominant company, but become the standard procedures for both. This includes operational and service processes, but can also be applied to aspects of the culture. Integrating initiatives - one problem that is not unique to mergers and acquisitions is initiative overload, where managers are overwhelmed with not just the merging of two organizations, but also quality initiatives, customer projects, SAP implementation, etc. One of the more challenging projects for an OD professional is integrating initiatives and helping leaders to make tough judgement calls on which ones should be suspended, eliminated, or combined. Watch key processes - often forgotten in the integration are key processes such as new hire orientation, training, and even compensation systems. These processes all support or sabotage both the present and desired culture. OD professionals understand the role of each organizational system plays in the culture; they must keep an eye on all important systems and processes. By remembering what makes mergers succeed and fail, keeping an eye on the human issues as well as the financials, and using the most appropriate organizational development tools, companies can avoid bad mergers and make the good ones work.

Q.5 Study a recent merger that you have read about and discuss the synergies that resulted from the merger. Ans: Below are excerpts from an interesting Harvard Business School Case Study (February 22, 2004) providing insight to the scale and value of the HP/Compaq Merger. John Benders role as Executive Director of Merger Integration gave him a front-row seat to the largest merger in tech history. Day-1 of the new HPs operations are viewed as best-in-class. Successful early integration of two massive IT infrastructures included hp.com (online store) being open for business, @hp employee portal with more than 2 million hits/day accessible to all employees, 1, 193 company networks connected at key strategic locations , active directory and enterprise directory synchronized and all E-mail systems interconnected linking more than 229,000 mailboxes and a quarter million desktops. More than $3.7B in synergies and 95% of integration milestones were achieved in the first 12 months spanning nearly every aspect of the new HP, and focused on key synergy areas of procurement & supply chain, headcount reduction, administrative facilities closures, and IT integration. Results easily exceeded Wall Street expectations of $1.4B.
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Excerpts from The New HP: The Clean Room and Beyond, Harvard Business School Case Study, February 22, 2004. In fiscal 2001, HP was the second largest computer company, behind IBM, with pre-merger revenue of $45 billion, 19th on the Fortune 500, with over 88,000 employees in more than 120 countries. However, HP was struggling with difficult economic conditions and a technology industry slump. At the time, Compaq was the third largest computer company, behind IBM and HP, with revenue of $42 billion in fiscal 2001. The company had 66,000 employees in over 200 countries, and was ranked 27th in the Fortune 500. Compaq integration of Tandem and Digital in 1997 and 1998 respectively proved difficult; further pressured by the computer industrys intense competition, Compaqs stock took a beating. When Fiorina approached Capellas about a licensing deal, he suggested a broader relationship between HP and Compaq. Capellas felt that there was too much capacity in the industry and that it made sense to consolidate during an economic downturn. The idea of a merger excited Fiorina, who saw it as an opportunity to create a highly competitive technology giant that was well positioned in virtually all of its markets. Historically, mergers within the technology industry had proven difficult, and both HP and Compaq had less than perfect track records with their prior acquisitions. Fiorina, recognizing the multiple obstacles to the mergers success, had created a dedicated integration team immediately after the merger was announced. The clean room, as the integration office came to be known, consisted of pairs of pre-merger HP and pre-merger Compaq employees who were responsible for planning the details of the execution of the merger upon its close. When the merger between HP and Compaq was first announced in early September of 2001 (eight months before it was approved), Fiorina and Capellas tapped Webb McKinney of HP and Jeff Clarke of Compaq to run the merger integration team. Together, McKinney and Clarke created a small integration office known as the clean room where they could begin planning the details of the merger without violating antitrust laws. The clean room started with a small group of employees but involved almost 2,500 people by the time of the mergers close. The clean room was responsible for developing a master plan to be implemented upon the mergers closure; this road map was to encompass all aspects of the combined company. The scope of decisions involved in melding the two companies was immense, ranging from larger issues with more strategic impactsuch as branding, product lines, and corporate cultureto smaller details, such as cash management systems and financial reporting practices. The integration team was responsible for establishing direction for the newly combined companies, setting priorities, and defining the details of its future operations.
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Members of the clean room used an adopt and go strategy to manage their decision-making process. Category by category, the team reviewed elements of the approaches used by each premerger company, and thenrather than using a hybrid or redesigning each systemselected the best method to use going forward. McKinney noted, Before the close, we were planning just about every aspect of the launch of the new company and how the new company would integrate. In a sense, it was almost like leading a traditional organization. The only unusual thing was that we were spending most of our time on planning. We could do some prototyping, but that was about it. It was like launching an $80 billion start-up except that the only thing we could do was plan. Once the merger closed, the clean room couldnt allow people to think that they could change everything that had been done for the last eight or nine months. It would just slow things down too much. Instead, as the teams form and you get together, your job is to understand and implement the decisions that have been made because speed is the number one thing. HPs cultural integration team rolled out Fast Start, a program designed to ease the transition, explain the new business model, and help define the culture of the newly combined companies. The Fast Start workshops were conducted in groupsled by team managers and a facilitatorand were designed to be highly interactive. All 155,000 people in the organization were required to complete the program.

Q.6 What are the motives for a joint venture, explain with an example of a joint venture. Ans: Joint venture, we have all heard of this term one time or another, but what exactly is a joint venture? In lay-mans terms a joint venture is wherein two or more parties build a relationship, they enter into some agreement to work towards a common goal. Although they have the same goals these parties remain separate and distinct from each other. Joint ventures take place across most industries where companies may combine forces for a specific project but may even be competitors for others. A joint venture is truly a great and proven way to access millions of potential partnerships across countries. Moreover joint venture is indeed a great way to combine efforts, resources, and ideas which will eventually increase sales for both sides of the party. The sales of your online business are more likely to increase with an increase in the number of people you reach through your joint venture effort.

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If you are an online entrepreneur and you are looking for new strategies to make your business a success, a joint venture may be in the cards and just the thing to create that success. Keep in mind that joint ventures are business partnerships that require cooperation and trust. However, they do not have to be permanent nor does a business owner need to share all his or her secrets to take advantage of a joint venture partnership. Here are some advantages a joint venture brings to your online business: 1. Joint venture enables you to access bigger markets. A strategic joint venture partnership can provide access to larger customer bases and geographical markets. Say for example you are running an online business that specializes in promotional items like shirts, coffee mugs, pens, and other merchandise with company logos. By forming a joint venture with a business consultant who has a wide-range of business contact network, you can supply them with unique promotional items and gain access to a large catalogue mailing list. There is a huge marketing possibility with a joint venture. Since marketing and promotion are always something you need to focus on for your business, getting otherwise inaccessible market taps can help your business grow. 2. Joint ventures give your business longer marketing efforts. The beauty of a joint venture is that not only will it enable you to access a larger market it also gives you a chance to extend your marketing efforts. If you are just starting up your online business then you may not have the budget yet for advertisements, however if you are part of a strategic joint venture you would be able to gain new marketing channels. Additionally, a joint venture strategy may give you more direct access to decision makers. 3. Joint venture gives you access to new resources / technology. Every online entrepreneur dreams of expanding his business with the use of technology. However have you ever thought of rather than trying to obtain venture capital for technology expansion, a joint venture is more appropriate and practical. When you loan money from the back or borrow from someone else, you have the obligation to pay it back before you recognize any considerable profit. But if we use the resources and technology already utilized by a joint venture partner, you could build business and raise revenues faster by sharing the profits. 4. Joint venture gives you access to a bigger and longer prospect list. As of the moment how big is your current opt-in list? Is there any way that you can expand and make your list grow? If you have a bigger opt-in list will that mean you get bigger chances of increasing your profits?

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A joint venture has the ability to broaden and grow your opt-in list in a lot of ways. If you are list leveraging with a partner, then anyone who responds visits your website, or makes a purchase is added to your opt-in list. Doing cross promotions have the same list building capabilities. Say for example you went ahead and posted an ad for your partner in your newsletter and they post an ad for you, then eventually everyone on their list that responds to your ad is now on your opt-in list. 5. Joint ventures promote better customer relationships. As an entrepreneur your credibility is important, and in offering your customers a new opportunity, a new product, or a new service with a reputable partner gives you instant credibility. Your customers also see you as someone that thinks about his customers and takes the time and effort to find and present quality opportunities to them. When you offer your customers an excellent product or service, you not only increase your credibility with them, you increase the likelihood that they are going to buy from you again. 6. A joint venture presents you with an opportunity to gain capacity and expertise. When you enter into a joint venture always remember that you should be able to gain as much from the other company as they can from you. This is one of the biggest advantages of a joint venture that should not be overlooked. 7. When you enter a joint venture any risk that you might get into is shared by you and the other party. Since the liability is shared there is less pressure on your part, and likewise the other group as well. Also the flexibility in a joint venture can make your life a lot easier. Like what I have said earlier a joint venture is good for as long as your contract stands. The life span of the agreement can be just enough to cover what you want as a joint venture is not a life time partnership. A joint venture is joining forces for one particular project and not putting two companies together forever and ever.

Master in Business Administration Semester 3 MF0011 Mergers and Acquisitions - 4 Credits

(Book ID: B1209) 13

Assignment Set- 2 (60 Marks)

Q.1 What is the basis for valuation of a target company? Ans: Basis of Valuation Valuation of business is done using one or more of these types of models: 1. Relative value models determine the value based on the market prices of similar business. 2. Absolute value models determine the value by estimating the expected future earnings from owning the business discounted to their present value An accurate valuation of companies largely depends on the reliability of the companys financial information. Inaccurate financial information can lead to over and undervaluation. In an acquisition, due diligence is commonly performed by the buyer to validate the representations made by the seller. The financial analysis required to be made in the case of merger or takeover is comprised of valuation of the assets and stocks of the target company in which the acquirer contemplates to invest large amount of capital. The financial evaluation of a merger is needed to determine the earnings and cash flows, areas of risk, the maximum price payable to the target company and the best way to finance the merger. In M & A, the acquiring firm must pay a fair consideration to the target firm. But, sometimes, the actual consideration may be more than or less than the fair consideration. A merger is said to be at a premium when the offer price is higher than the target firms pre-merger market value. It may have to pay premium as an incentive to the target firms shareholders to induce them to sell their shares. The value of the firm depends not only upon its earnings but also upon the operating and financial characteristics of the acquiring firm. It is therefore, not possible to place a single value for the acquired firm. Instead, a range of values is determined, which would be economically justifiable to the prospective acquirer. To determine an acceptable price for a firm, a number of factors, qualitative (managerial talent, strong sales staff, excellent production department etc) as well as quantitative (value of an asset, earnings of the firm etc) are relevant. Therefore, the focus of determining the firms value is on several quantitative variables. There are several bases of valuation as listed below: Asset Value The business is taken as going concern and realizable value of assets is considered which include both tangible and intangible assets. The value of goodwill is added to the value of the tangible assets which gives value of the company as a going concern. Goodwill represents the companys excess earning power capitalized on the basis of certain number of years purchases. Capitalized earnings

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This is the predetermined rate of return expected by an investor. In other words, this is simple rate of return on capital employed. Under this method, the expected profit will be divided by the expected rate of return to calculate the value of the acquisition. Market Value of listed stocks Market value is the value quoted for the stocks of listed company at stock exchanges. The market price reflects investors anticipation of future earnings, dividend payout ratio, confidence in management of company, operational efficiency etc. The temporary factors causing volatility are eliminated by averaging the quotations over a period of time to arrive at a fair market value. The acquirer pays only market value in hostile takeover. The market value approach is one of the most widely used in determining value, especially of large listed firms. The market value provides a close approximation of the true value of a firm. Earnings Per Share The value of a prospective acquisition is considered to be a function of the impact of the merger on the earnings per share. The analysis could focus on whether the acquisition will have a positive impact on the EPS after the merger or if it will have the effect of diluting the EPS. The future EPS will affect the firms share prices, which is the function of price-earning (P/E) ratio and EPS. Investment value Investment value is the cost incurred (original investment plus the interest accrued thereon) to establish an enterprise. This determines the sale price of the target company which the acquirer may be asked to pay for the negotiated merger. Book Value Book value represents the total worth of the assets after depreciation but with revaluation. Book value is the audited written down money worth of the total net tangible assets owned by a company. The total net assets are composed of gross working capital plus fixed assets minus outside liabilities. The book value, as the basis of determining a firms value, suffers from a serious limitation as it is based on the historical costs of the assets of the firm. Historical costs do not bear a relationship either to the value of the firm or to its ability to generate earnings. However, it is relevant to the determination of a firms value for the following reasons: i) It can be used as a starting point to be compared and complemented by other analyses. ii) The ability to generate earnings requires large investments in fixed assets and working capital and study of these factors is particularly appropriate and necessary in mergers Cost basis valuation Cost of the assets less depreciation becomes the basis under this method. This method ignores intangible assets like goodwill. It does not give weight to changes in price level.
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 Reproduction Cost Reproduction cost method is based on assessing the current cost of duplicating the properties or constructing similar enterprise in design and material. It does not take into account the intangible assets for valuation purpose. Substitution cost Substitution cost is the estimate of the cost of construction of the undertaking or enterprise in the same utility and capacity. Out of the above nine methods of valuation, the important methods are: assets based valuation, earning based valuation and market price valuation. These methods are frequently used in the corporate mergers and acquisition.

Q.2 Discuss the factors in post-merger integration process. Ans: Factors in post-merger integration There are many factors which require attention of the management and tend to widen its role in post-merger integration. A list of such factors is give below in brief: Legal obligation Fulfilment of legal obligation becomes essential in post-merger integration. Such obligations depend upon the size of the company, debt structure and controlling regulations, distribution channels, and dealer net-work, suppliers relations etc. In all or some of these cases legal documentation would be involved. The rights and the interests of the stake holders should be protected with the new or changed management of the acquiring company. Regulatory bodies like RBI, Stock Exchanges, and SEBI etc would also ensure adherence to their respective guidelines and regulations. It should be ensured at the time of integration that the company out its legal obligations in all related and requisite areas. Consolidation of operations Acquiring company has to consolidate the operations, blending the acquired companys operations with its own operation. The consolidation of operation covers not only the production process, adoption of new technology and engineering requirements in the production process, but also the entire technical aspects covering technical know-how, project engineering, plant layout, schedule of implementation, product designs, plant and equipments, manpower requirements, work schedule, pollution control measure etc. in the process leading to the final product. Installation of top management

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Merger and acquisition affect the top management structure. A cohesive team is required at board level as well as senior executive level. Installation of management in the process of integration involves combination of issues related to: Selection or transfer of managers Changes in organizational structure Development of consistent corporate culture, including a frame of reference to guide strategic decisions making Commitment and motivation of personnel Establishment of new leadership The integration would involve induction of the directors of the acquired company on the Board of acquiring company, or induction of persons outside who have expertise in directing and policy planning. At top level also, changes are required, particularly depending upon terms and conditions of the merger to adjust in suitable positions the top executive of the acquired company to create congenial environment within the organization. The mechanism of corporate control encompassing delegation of power and power of control, accounting responsibility, MIS and communication channels are the important factors to be taken into consideration in the process of integration. Rationalizing financial resources It is important to revamp the financial resources of the company to ensure availability of financial resources and liquidity. Sometimes on happening of certain uncontrollable events, the financing plans have got to be verified, reviewed and changed. Integration of financial structure This is an important aspect which concerns most of stake holders of the company. Generally, financial structure is reorganized as per the scheme of arrangement, merger or amalgamation approved by the shareholders and creditors. But in the case of takeover or acquisition of an undertaking made by one company of the other through acquiring financial stake by way of acquisition of shares, the integration of financial structure would be a post-merger event which might compel the company to change its capital base, revalue its assets and reallocate reserves. Toning up production and marketing management With regard to the size of the company and its operational scale, its production line is to be adjusted during post-merger period. Decisions are taken on the basis of feasibility studies done by the experts. For tuning up of production, it is also necessary that resources be properly allocated for planned programme for utilization of scarce and limited resources available to a firm so as to direct the production process to result into optimal production and operational efficiency. Revamping of marketing strategy is also essential in post-merger integration. This is done on the basis of market surveys and recommendations of the
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marketing experts. Pricing policy also deserve attention for gaining competitive strength in the different market segments. Corporate planning and control Corporate planning to a large extent is guided by the corporate policy. Corporate policy prescribes guidelines that govern the decision making process and regulates the implementation of the decisions. Control as an activity of management involves comparison of performance with predetermined standards. In each area of corporate activities whether it is personnel, material, financial management, planning is associated with control.

Q.3 List out the defence strategies in the face of a hostile takeover bid. Ans: Defence in face of takeover bid (Strategies) A company is supposed to take defensive steps when it comes to know that some corporate raider has been making efforts for takeover. For defence against takeover bid, two types of strategies could be as below: Commercial Strategies 1. Dissemination of favourable information among shareholders. 2. Step up dividend and update share price record (i.e. pushing up share price) 3. To revalue the fixed assets periodically and incorporate them in the balance sheet 4. Reorganization of Capital structure 5. Research based arguments should be prepared to show and convince the shareholders that the offer is incapable of managing the business. 6. Trace out the various discouraging commercial features of the functioning of the acquiring company (e.g. Pending cases in labour/consumer/tax tribunal) Tactical / Defence Strategies 1. The directors of the company may persuade their friends and relatives to purchase the shares of the offered company 2. The board may make attempt to win over the shareholders through raising their emotional attachment, loyalty and patriotism etc. 3. Recourse to legal actions
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In order to defuse situation of hostile takeover attempts, companies have been given power to refuse to register the transfer of shares under relevant sections of Companies Act 1956. If this is done, a company must inform the transferee and the transferor within 60 days. It is the responsibility of the directors to accept a takeover bid. A refusal to register is permitted if: - A legal requirement relating to the transfer of shares is not complied with - The transfer is in contravention of the law - The transfer is prohibited by a court order - The transfer is not in the interest of the company and public. 4. Operation White Knights - The white knight defense involves choosing another company with which the target prefers to be combined. A target company is said to use a white knight when its management offers to be acquired by a friendly company to escape from a hostile takeover. An alternative company might be preferred by the target because it sees greater compatibility, or the new bidder might promise not to break up the target or engage in massive employees dismissal. The possible motive for the management of the target company to do so is not to lose the management of the company. White knight offers a higher bid to the target company than the present predator to avert the takeover bid by hostile suitor. With the higher bid offered by the white knight the predator might not remain interested in acquisition and hence the target company is protected from losing to corporate raid. 5. White Square - The white square is a modified form of a white knight. The difference being that the white square does not acquire control of the target. In a white square transaction, the target sells a block of its stock to a third party it considers to be friendly. The white square sometimes is required to vote its shares with the target management. These transactions often are accompanied by a stand-still agreement that limits the amount of additional target stock the white square can purchase for a specified period of time and restricts the sale of its target stock, usually giving the right of first refusal to the target. In return, the white square often receives a seat on the target board, generous dividends, and/or a discount on the target shares. Preferred stock enables the board to tailor the characteristics of that stock to fit the transaction and so usually is used in white square transaction. 6. Disposing of Crown Jewel - When a target company uses the tactics of divestiture, it is said to sell the Crown Jewel. The precious assets in the company are called crown jewel to depict the greed of the acquirer under the takeover bid. These precious assets attract the rider to bid for the companys control. The company as a defense strategy, in its own interest, sells these valuable assets at its own initiative leaving the rest of the company intact. Instead of selling these valuable assets, the company may also lease them or mortgage them to creditors so that the attraction of free assets to the predator is over. As per SEBI takeover regulation, the
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above defense can be used only before the predator makes public announcement of its intention to take over the target company 7. Pac-Man strategy: - It is making counter bid for the bidder. The Pac-Man defense is essence involves the target counter offering for the bidder. Under this strategy the target company attempts to takeover the hostile raider. This happens when the target company is quite larger than predator. This severe defense is rarely used and in fact usually is designed not to be used. If the Pac Man defense is used, it is extremely costly and could have devastating financial effects for both firms involved. There is a risk that under state law, should both firms buy substantial stakes in each other, each would be ruled as subsidiaries of the other and be unable to vote its shares against the corporate parent. The severity of the defense may lead the bidder to disbelieve that the target actually will employ the defense. 8. Golden Parachutes - Golden parachutes are separation provisions of an employment contract that compensate managers for the loss of their jobs under a change-of- control clause. The provision usually calls for a lump-sum payment or payment over a specified period at full or partial rates of normal compensation. When a company offers hefty compensations to its managers if they get ousted due to takeover, the company is said to offer golden parachutes. This reduces their resistance to takeover. This envisages a termination packages for senior executives and used as a protection to the directors of the company against the takeover bid. 9. Shark Repellent character - The companies change and amend their bylaws and regulations to be less attractive for the corporate raider company. Such features in the bylaws are called Shark Repellent character. Companies adopt this tactic as precautionary measure against prospective bids. Eg: Share holders approvals for approving combination proposal are fixed at minimum by 80-95% of the shareholders meeting. 10. Swallowing Poison Pills strategy - Poison pills represent the creation of securities carrying special rights exercisable by a triggering event. The triggering event could be the accumulation of a specified percentage of target shares or the announcement of a tender offer. The special rights take many forms but they all make it costlier to acquire control of the target firm. As a tactical strategy, the target company might issue convertible securities, which are converted into equity to deter the efforts of the offer, or because such conversion dilutes the bidders shares and discourages acquisition. Another example, Target Company might rise borrowing distorting normal Debt to Equity ratio. Poison pills can be adopted by the board of directors without shareholder approval. Although not required, directors often will submit poison pill adoptions to shareholders for ratification. 11. Green Mail - It refers to an incentive offered by the management of the target company to the potential bidder for not pursuing the takeover. The management of the target company may offer the
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acquirer for its shares a price higher than the market price. A large block of shares is held by an unfriendly company which forces the target company to repurchase the stock at a substantial premium to prevent the takeover. The purpose of the premium buyback presumably is to end a hostile takeover threat by the large block holder or green mailer. This is an expensive defense mechanism. The large block investors involved in greenmail help bring about management changes either changes in corporate personnel, or changes in corporate policy, or have superior skills at evaluation potential takeover targets. 12. Poison Put - A covenant allowing the bondholder to demand repayment in the event of a hostile takeover. This poison put feature seeks to protect against risk of takeover-related deterioration of target bonds, at the same time placing a potentially large cash demand on the new owner, thus raising the cost of an acquisition. Merger and acquisition activity in general has had negative impacts on bondholders wealth. This was particularly true when leverage increases where substantial. 13. Grey Knight - A friendly party of the target company who seeks to takeover the predator. The target company may adopt a combination of various strategies for successfully averting the acquisition bid. All the above strategies are experience based and have been successfully used in developed nations and some of them have been tested by Indian companies also.

Q.4 What are the legal compliance issues a company has to adhere to in case of a merger. Explain through an example. Ans: Laws Regulating Merger Following are the laws that regulate the merger of the company:(I) The Companies Act , 1956 Section 390 to 395 of Companies Act, 1956 deal with arrangements, amalgamations, mergers and the procedure to be followed for getting the arrangement, compromise or the scheme of amalgamation approved. Though, section 391 deals with the issue of compromise or arrangement which is different from the issue of amalgamation as deal with under section 394, as section 394 too refers to the procedure under section 391 etc., all the section are to be seen together while understanding the procedure of getting the scheme of amalgamation approved. Again, it is true that while the procedure to be followed in case of amalgamation of two companies is wider than the scheme of compromise or arrangement though there exist substantial overlapping. The procedure to be followed while getting the scheme of amalgamation and the important points, are as follows:(1) Any company, creditors of the company, class of them, members or the class of members can file an application under section 391 seeking sanction of any scheme of compromise or
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arrangement. However, by its very nature it can be understood that the scheme of amalgamation is normally presented by the company. While filing an application either under section 391 or section 394, the applicant is supposed to disclose all material particulars in accordance with the provisions of the Act. (2) Upon satisfying that the scheme is prima facie workable and fair, the Tribunal order for the meeting of the members, class of members, creditors or the class of creditors. Rather, passing an order calling for meeting, if the requirements of holding meetings with class of shareholders or the members, are specifically dealt with in the order calling meeting, then, there wont be any subsequent litigation. The scope of conduct of meeting with such class of members or the shareholders is wider in case of amalgamation than where a scheme of compromise or arrangement is sought for under section 391 (3) The scheme must get approved by the majority of the stake holders viz., the members, class of members, creditors or such class of creditors. The scope of conduct of meeting with the members, class of members, creditors or such class of creditors will be restrictive somewhat in an application seeking compromise or arrangement. (4) There should be due notice disclosing all material particulars and annexing the copy of the scheme as the case may be while calling the meeting. (5) In a case where amalgamation of two companies is sought for, before approving the scheme of amalgamation, a report is to be received from the registrar of companies that the approval of scheme will not prejudice the interests of the shareholders. (6) The Central Government is also required to file its report in an application seeking approval of compromise, arrangement or the amalgamation as the case may be under section 394A. (7) After complying with all the requirements, if the scheme is approved, then, the certified copy of the order is to be filed with the concerned authorities. (II) The Competition Act ,2002 Following provisions of the Competition Act, 2002 deals with mergers of the company:(1) Section 5 of the Competition Act, 2002 deals with Combinations which defines combination by reference to assets and turnover (a) exclusively in India and (b) in India and outside India. For example, an Indian company with turnover of Rs. 3000 crores cannot acquire another Indian company without prior notification and approval of the Competition Commission. On the other hand, a foreign company with turnover outside India of more than USD 1.5 billion (or in excess of Rs. 4500 crores) may acquire a company in India with sales just short of Rs. 1500 crores without any notification to (or approval of) the Competition Commission being required. (2) Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void. All types of intra-group combinations, mergers, demergers, reorganizations and other similar
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transactions should be specifically exempted from the notification procedure and appropriate clauses should be incorporated in sub-regulation 5(2) of the Regulations. These transactions do not have any competitive impact on the market for assessment under the Competition Act, Section 6. (III) Foreign Exchange Management Act,1999 The foreign exchange laws relating to issuance and allotment of shares to foreign entities are contained in The Foreign Exchange Management (Transfer or Issue of Security by a person residing out of India) Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May, 2000. These regulations provide general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India or recording in its books any transfer of security from or to such person. RBI has issued detailed guidelines on foreign investment in India vide Foreign Direct Investment Scheme contained in Schedule 1 of said regulation. (IV) SEBI Takeover Code 1994 SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15% up to 55%, provided the acquirer does not acquire more than 5% of shares or voting rights of the target company in any financial year. [Regulation 11(1) of the SEBI Takeover Regulations] However, acquisition of shares or voting rights beyond 26% would apparently attract the notification procedure under the Act. It should be clarified that notification to CCI will not be required for consolidation of shares or voting rights permitted under the SEBI Takeover Regulations. Similarly the acquirer who has already acquired control of a company (say a listed company), after adhering to all requirements of SEBI Takeover Regulations and also the Act, should be exempted from the Act for further acquisition of shares or voting rights in the same company. (V) The Indian Income Tax Act (ITA), 1961 Merger has not been defined under the ITA but has been covered under the term 'amalgamation' as defined in section 2(1B) of the Act. To encourage restructuring, merger and demerger has been given a special treatment in the Income-tax Act since the beginning. The Finance Act, 1999 clarified many issues relating to Business Reorganizations thereby facilitating and making business restructuring tax neutral. As per Finance Minister this has been done to accelerate internal liberalization. Certain provisions applicable to mergers/demergers are as under: Definition of Amalgamation/Merger Section 2(1B). Amalgamation means merger of either one or more companies with another company or merger of two or more companies to form one company in such a manner that: (1) All the properties and liabilities of the transferor company/companies become the properties and liabilities of Transferee Company. (2) Shareholders holding not less than 75% of the value of shares in the transferor company (other than shares which are held by, or by a nominee for, the transferee company or its subsidiaries) become shareholders of the transferee company. The following provisions would be applicable to merger only if the conditions laid down in section 2(1B) relating to merger are fulfilled: (1) Taxability in the hands of Transferee Company Section 47(vi) & section 47 (a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the transferee company on merger is not regarded as transfer and hence gains arising from the same are not chargeable to tax in the hands of the shareholders of the transferee company. [Section 47(vii)] (b) In case of merger, cost of acquisition of shares of the transferee company, which were
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acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor company. [Section 49(2)] (VI) Mandatory permission by the courts Any scheme for mergers has to be sanctioned by the courts of the country. The company act provides that the high court of the respective states where the transferor and the transferee companies have their respective registered offices have the necessary jurisdiction to direct the winding up or regulate the merger of the companies registered in or outside India. The high courts can also supervise any arrangements or modifications in the arrangements after having sanctioned the scheme of mergers as per the section 392 of the Company Act. Thereafter the courts would issue the necessary sanctions for the scheme of mergers after dealing with the application for the merger if they are convinced that the impending merger is fair and reasonable. The courts also have a certain limit to their powers to exercise their jurisdiction which have essentially evolved from their own rulings. For example, the courts will not allow the merger to come through the intervention of the courts, if the same can be effected through some other provisions of the Companies Act; further, the courts cannot allow for the merger to proceed if there was something that the parties themselves could not agree to; also, if the merger, if allowed, would be in contravention of certain conditions laid down by the law, such a merger also cannot be permitted. The courts have no special jurisdiction with regard to the issuance of writs to entertain an appeal over a matter that is otherwise final, conclusive and binding as per the section 391 of the Company act. (VII) Stamp duty Stamp act varies from state to State. As per Bombay Stamp Act, conveyance includes an order in respect of amalgamation; by which property is transferred to or vested in any other person. As per this Act, rate of stamp duty is 10 per cent. Intellectual Property Due Diligence In Mergers And Acquisitions The increased profile, frequency, and value of intellectual property related transactions have elevated the need for all legal and financial professionals and Intellectual Property (IP) owner to have thorough understanding of the assessment and the valuation of these assets, and their role in commercial transaction. A detailed assessment of intellectual property asset is becoming an increasingly integrated part of commercial transaction. Due diligence is the process of investigating a partys ownership, right to use, and right to stop others from using the IP rights involved in sale or merger ---the nature of transaction and the rights being acquired will determine the extent and focus of the due diligence review. Due Diligence in IP for valuation would help in building strategy, where in:(a) If Intellectual Property asset is underplayed the plans for maximization would be discussed. (b) If the Trademark has been maximized to the point that it has lost its cachet in the market place, reclaiming may be considered. (c) If mark is undergoing generalization and is becoming generic, reclaiming the mark from slipping to generic status would need to be considered. (d) Certain events can devalue an Intellectual Property Asset, in the same way a fire can suddenly destroy a piece of real property. These sudden events in respect of IP could be adverse publicity or personal injury arising from a product. An essential part of the due diligence and valuation process accounts for the impact of product and company-related
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events on assets management can use risk information revealed in the due diligence. (e) Due diligence could highlight contingent risk which do not always arise from Intellectual Property law itself but may be significantly affected by product liability and contract law and other non Intellectual Property realms. Therefore Intellectual Property due diligence and valuation can be correlated with the overall legal due diligence to provide an accurate conclusion regarding the asset present and future value Legal Procedure For Bringing About Merger Of Companies (1) Examination of object clauses: The MOA of both the companies should be examined to check the power to amalgamate is available. Further, the object clause of the merging company should permit it to carry on the business of the merged company. If such clauses do not exist, necessary approvals of the share holders, board of directors, and company law board are required. (2) Intimation to stock exchanges: The stock exchanges where merging and merged companies are listed should be informed about the merger proposal. From time to time, copies of all notices, resolutions, and orders should be mailed to the concerned stock exchanges. (3) Approval of the draft merger proposal by the respective boards: The draft merger proposal should be approved by the respective BODs. The board of each company should pass a resolution authorizing its directors/executives to pursue the matter further. (4) Application to high courts: Once the drafts of merger proposal is approved by the respective boards, each company should make an application to the high court of the state where its registered office is situated so that it can convene the meetings of share holders and creditors for passing the merger proposal. (5) Dispatch of notice to share holders and creditors: In order to convene the meetings of share holders and creditors, a notice and an explanatory statement of the meeting, as approved by the high court, should be dispatched by each company to its shareholders and creditors so that they get 21 days advance intimation. The notice of the meetings should also be published in two news papers. (6) Holding of meetings of share holders and creditors: A meeting of share holders should be held by each company for passing the scheme of mergers at least 75% of shareholders who vote either in person or by proxy must approve the scheme of merger. Same applies to creditors also. (7) Petition to High Court for confirmation and passing of HC orders: Once the mergers scheme is passed by the share holders and creditors, the companies involved in the merger should present a petition to the HC for confirming the scheme of merger. A notice about the same has to be published in 2 newspapers. (8) Filing the order with the registrar: Certified true copies of the high court order must be filed with the registrar of companies within the time limit specified by the court. (9) Transfer of assets and liabilities: After the final orders have been passed by both the HCs, all the assets and liabilities of the merged company will have to be transferred to the merging company. (10) Issue of shares and debentures: The merging company, after fulfilling the provisions of the law, should issue shares and debentures of the merging company. The new shares and debentures so issued will then be listed on the stock exchange.
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Legal Aspect of Cross Border Mergers & Acquisitions: Arcelor Mittal Deal 1. Need for Mergers & Acquisitions
o

Opportunities: Gain market share Economies of scale Enter new markets Acquire technologies Strategic Benefit Complementary resource Tax shields Utilisation of surplus funds Managerial Effectiveness Integrate vertically

2. Need for Mergers & Acquisitions

o o

Threats:

Grasping for a company simply because its on the market, or because a competitor wants to buy it .
o o o o o

Overpayment or misguided purchase Reduce cost of debt. Diverse Business; Unmanageable Leaping without looking at the value; Win-Win or no deal Inability to integrate well. 3. Types of Mergers & Acquisitions

o o

Strategies used:

Exploit market power, economies of scale & scope, and market inefficiencies
o o o o o

Same industry/ Same market Consolidation Related industries Horizontal

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o o o o o o o

Jet-Sahara Same industry/ Different market (Conglomerate) LIC-UTI Bank Suppliers Vertical ITC 4. Considerations: Costs & Benefits

When firm A acquires firm B, A is making a capital investment while B is making capital divestment based on NPV method
o o o o o

Benefit = PV(AB) {PV(A) + PV(B)} Cost = Cash PV(B) NPV to A= Benefit Cost NPV to B= Cash PV(B) 5. Considerations: Legal Procedure

The MOA to be scrutinised Intimation to Stock Exchanges Approval of draft amalgamation proposal Application to the Court Notice to shareholders and creditors Filing the order Transfer of assets and liabilities Issue of shares and debentures

6. Arcelor Mittal Deal 7. Arcelor Mittal Deal The deal is noteworthy for its legal aspects as for its commercial significance;
o

combining cross-border regulatory complexity, innovative bid defence techniques and measures to overcome dramatic shareholder revolt.
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them

8. Arcelor Mittal Deal

Worlds two largest steel makers merge: new entity will be three times larger than the rivals individually , and the new company will account for 10% of global production
o

Guy Dole initially rejected Mittal as a Company of Indians and two did not share strategic vision;
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EU approved it on June 6; but on June 20 , SeverStal revised merger terms by lowering equity to 25% and raised the offer to 2billion euros. But, on June 23, Arcelor shareholders rejected SeverStal and ratified the Arcelor Mittal deal.
o

9. Legal Complexities
o o o o

Multinational Jurisdiction EC Directive Anti competition Laws Shareholder resolutions 10. Multi-jurisdictional offer

The offer was governed by takeover regulations all the jurisdictions in which Arcelors securities were listed (Belgium, France, Luxembourg and Spain).
o

The offer terms and documents required the approval of the relevant securities regulators in each jurisdiction.
o

Mittal is a Dutch NV and its shares, which were part of the consideration offered, are listed on the New York Stock Exchange (the primary listing pre-offer) and on Euronext Amsterdam.
o

Thus, the offer also had to comply with US Securities and Exchange Commission (SEC) rules and regulations, and the offer document (share listing prospectus) required the approval of the SEC and the Dutch securities regulator.
o

11. EC Directive Mittals offer was made before Directive 2004/25/EC* on takeover bids (the Takeovers Directive) had been fully implemented in all the relevant jurisdictions
o o o o

* 2004/25/EC Author: European Parliament , Council

In accordance with Article 44(2)(g) of the Treaty, it is necessary to coordinate certain safeguards which, for the protection of the interests of members and others, Member States require of companies governed by the law of a Member State the securities of which are admitted to trading on a regulated market in a Member State, with a view to making such safeguards equivalent throughout the Community. 12. EC Directive: Implementation and impact 13. EC Directive: Key Issues with all the member states
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14. Shared Jurisdiction If bidder company is not registered in the country where its making bid for target company, then such bids need to comply with 2 sets of compliancess. & 2 regulators will have juridiction over different elements of bids. 15. Pre-bid Defenses and frustrating action: opting in or out Restriction on frustation action by shareholders Breakthrough provision: bidder can over ride target shareholders blocking rights 16. Squeeze-outs and information If bidder acquire 90-95% shares of firm, but rest 5% are resisting. Hence left rest members to fix there own threshold and time period. Restriction on share transfer needs to disclosed 17. EC Directive Arcelor was the first Luxembourg-resident target of a hostile takeover offer and this meant that politicians considering draft legislation implementing the Takeovers Directive watched the deal closely.
o

As part of its bid defence, Arcelor lobbied for amendments that would have assisted hostile targets, including provisions that would have required shares offered in an exchange or partial exchange offer to satisfy minimum liquidity requirements.
o

18. Multi-jurisdictional offer To complicate matters further, the deadline for implementation of the Takeovers Directive fell during the acceptance period and the implementation arrangements differed in each of the jurisdictions.
o

19. Anti-Competition issues: Competition/anti-trust filings were required in the EU, the US, Canada and elsewhere. One area of particular interest was the potential impact of including
o

Dofasco, Inc (Dofasco), a Canadian steel company, within the

merged group. Arcelor had acquired control of Dofasco in January 2006 following a takeover battle with ThyssenKrupp AG (ThyssenKrupp), a German steel company.

Mittals operations in North America were already extensive and this led to strategic and competition issues.
o

20. Anti-Competition issues: Mittal agreed with ThyssenKrupp that, if Mittal acquired a controlling interest in Arcelor, it would cause Arcelor to sell Dofasco to ThyssenKrupp at ThyssenKrupps highest bid price.
o

Mittal proposed to compensate Arcelor for the difference between the price it had paid and the proceeds of the sale to ThyssenKrupp.
o

However, as part of its bid defence, Arcelor transferred Dofasco to Strategic Steel Stichting, a Dutch foundation ( stichting ) created for the purpose, to prevent any
o

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sale of Dofasco for five years (unless the stichting board decides to dissolve the stichting sooner). Dutch stichtings have been used in bid defences before, including in Gucci Group NVs 1999 defence against LVMH Mot Hennessy Louis Vuitton SAs unsolicited (and ultimately unsuccessful) takeover bid.
o

In response, Mittal entered into a pocket consent decree with the US Department of Justice, one of only a handful of such decrees in the past decade, under which it was agreed that any antitrust issue could be resolved through the disposal of an alternative asset if Mittal was unable to sell Dofasco as a result of the stichting.
o

21. White knight defense and shareholder revolt The most powerful weapon in Arcelors arsenal was fired on 26 May 2006, when the company announced that it had agreed to acquire the mining and steel assets of Alexey Mordashov, including 89.6% of OAO Severstal (Severstal), a Russian steel company .
o

Instead of being structured as a competing bid, the deal was structured as a contribution of assets by Mr Mordashov in return for shares in Arcelor. This meant that the consideration shares could be issued under existing delegations to the Arcelor board of directors, and without the need to seek approval from Arcelor shareholders.
o

Arcelor shareholders were, however, able to veto the Severstal deal, provided that holders of more than 50% of Arcelors share capital voted against it at a shareholders meeting.
o

22. White knight defense and shareholder revolt This was a much higher threshold than is usual for shareholder approval (typically, two-thirds of shareholders present and voting) and, in practice, a veto seemed unlikely, as attendance at past meetings had never been above 35%.
o

The arrangements triggered a shareholder revolt, with between 20 to 30% of Arcelors shareholders signing a letter to Arcelor demanding the right to choose between the Severstal and Mittal proposals.
o

An intense period of negotiations with Mittal followed, culminating in the announcement of the agreed memorandum of understanding between Arcelor and Mittal and the Arcelor boards recommendation of Mittals offer on 25 June 2006.
o

On 26 July 2006, Mittal was able to announce that 92% of Arcelors shares had been tendered in response to its offer. It is intended that Mittal will formally merge into Arcelor later in 2007. On 30 June 2006, Arcelor shareholders holding about 58% of the outstanding share capital voted against the proposed Severstal merger at a rescheduled meeting. It is perhaps in this regard that the practical legacy of the deal in Europe will be most notable.
o

23. Comments on deal by leading law firms: It was a ground-breaking transaction, particularly in terms of shareholder democracy in Europe, with target shareholders organising and acting in the face of
o

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entrenchment measures, says John Brinitzer, a partner at Cleary Gottlieb Steen & Hamilton, who advised on the deal. Pierre Servan-Schreiber, a partner at Skadden Arps Slate Meagher & Flom agrees: The deal illustrates very clearly the rise of the professional shareholder activist in Europe. In hostile situations, companies must now consider how best to balance the interests of that specific, and very vocal, population of shareholders with those of other stakeholders.
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Q.5 Take a cross border acquisition by an Indian company and critically evaluate. Ans: The India story has seen a profound shift in gear and direction during 2006. While in recent years most media references to Indias growth have focused on the sub-continent as a destination for outsourcing and investment, this year has seen the arrival of India as a shaping force on global markets. This is particularly evident in the powerful new trend towards overseas acquisitions by Indian companies. In 2006 Accenture conducted a unique survey of key industry players in India that looked into the imperatives driving globalisation. This survey, in conjunction with wider economic Analysis has prompted this report. It outlines the engines for the crossborder expansion of Indian companies and details the opportunities and challenges ahead. Our analysis strongly suggests that the main factor driving Indian cross border mergers and acquisitions (M&A) is the search for top-line revenue growth through new capabilities and assets, product diversification and market entry. This trend is not driven purely by opportunistic factors: Indian companies are in many cases motivated to look abroad in response to newly competitive, complex or risky domestic markets or to find capabilities and assets that are lacking in India. The steep increase in the number of major cross-border transactions in recent years - from 20 in 2002 to more than 180 predicted in 2006 - has been facilitated by the relaxation of regulations on overseas capital movements as well as a more Supportive political and economic environment, including deeper currency reserves, and easier access to debt financing, both at home and from international banks. This M&A trend is a key factor helping Indian companies to emerge on the global stage. Six Indian companies feature in the Fortune Global 500 list of the biggest companies in the world. These are Indian Oil, Reliance Industries, Bharat Petroleum, Hindustan Petroleum, Oil & Natural Gas, and the State Bank of India. Based on current growth and M&A trends, we would expect this number to double by 2010. The strategy by which many Indian companies are expanding globally is also distinctive. As Indian companies Are relatively small by the standards of global multinationals, their cross border acquisitions also tend to be smaller. These deals are therefore often carried out as part of a broader globalisation drive involving a string of strategically-targeted acquisitions. This is particularly the case for Indias larger corporate groups, for example Tata, that look to strengthen specific parts of their value chain And develop globally integrated offerings. The locations of the acquisitions also reflect the strategies
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Of Indias globalisers. Attracted by the markets and higher-value offerings of developed economies, Indian companies are making the vast majority of their transactions in North America, Europe and the More developed economies in Asia, with transactions equally distributed between these locations. Indias current success in overseas acquisitions is fuelled by a new class of business leaders. The Confidence within the Indian business community, combined with its natural entrepreneurial zeal and intuitive ease with global business models, creates a formidable force. This report, based on Accentures recent survey and wider economic analysis, identifies four key imperatives for Indian companies considering overseas acquisitions: Maintain clear but flexible organisational structures and accountabilities Conduct deep and wide due diligence Take a strategic approach to location decisions Ensure commitment and communication from leadership. There is no doubt that Indias globalises are searching for expansion opportunities to strengthen their offerings in India and abroad. There are four imperatives driving this expansion: The need to capture new markets Some 81 percent of participants in the Accenture study said that a key motivation for going global was to find new markets to sustain top-line growth.1 Entry to overseas markets via M&A may be attractive for reasons that include increased proximity to customers, access to resources, competition at home, or domestic regulatory barriers. From 1995 to August 2006, 29 percent of Indian cross-border M&As occurred in the European Union and 32 percent in North America3 (see Figure 2). These developed economies are attractive because of their large consumer markets, transparent business processes, rule of law, advanced technologies, skills and knowledge capital. Moreover, as the markets in these economies tend to be mature and saturated, it often proves difficult for Indian companies to gain market share without acquisitions. In line with this trend, the more developed economies of Singapore, Hong Kong and South Korea together account for 40 percent of the cross-border acquisitions conducted by India within Asia in the first half of 2006. Accentures research found that 76 Percent of Indian companies that expanded abroad did so in order to operate more closely to global Customers.1 targeting established firms, particularly in developed economies, is an effective way to gain market share as well as provide a platform for regional growth. Further, it is usually easier to access other resources and benefits once a company is established in a foreign market. Once companies have a foothold in a market, they can explore further acquisition opportunities to consolidate their local presence, reach new customers, and acquire new sources of supply and Further assets and capabilities. Less developed economies also have their attractions, such as low acquisition costs and favourable terms due to a high demand for foreign direct investment (FDI) and capital.
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The recent global spending spree by Tata which has concluded deals in the United States (Eight Oclock), the United Kingdom (Tetley) and Thailand (Millennium Steel) - illustrates some of the strategic thinking behind location decisions: the groups industrial and manufacturing businesses have clearly found it more attractive to target acquisitions in developing markets, while the services companies in the group tend to seek opportunities in developed markets. Emerging markets Also may be attractive to Indian companies because they provide access to consumer markets which are often overlooked by Western firms. In contrast to India, China has invested heavily in emerging economies in Africa, Central Asia and Latin America, largely to secure the natural resources essential for its own economic growth. The urgency for India to step up its efforts to do the same is quickly Becoming apparent. But competing with China on this global hunt for resources will prove a major challenge for India which cannot begin to match its neighbours state-leveraged financial power. The need to expand capabilities and assets Many Indian companies are seeking to expand their distinctive capabilities by acquiring specific skills, knowledge and technology abroad that are either unavailable or of inadequate quality at home. Sun Pharmaceutical Industries, for example, acquired Able Laboratories Inc of New Jersey for US$23.15 million in December 2005 to gain its in-house manufacturing and development capabilities for generic Pharmaceutical products. Indian companies are also using M& as to assimilate technologies that have Been tried and tested abroad. i-Flex, for example, the software company based in Mumbai, recently paid US$11 .5 million for the US company Super solutions Corp5 to access technology that is widely used in US banks. At a broader organisational level, such acquisitions can also improve overall standards of customer service, processes and quality. Our analysis suggests that M&As are helping Indian companies to capitalise on their traditional low cost structures. Indian companies are able to identify foreign firms that have value-added offerings which complement their own low-cost products and services to create an efficient integrated global business model - turning the conventional direction of such deals on its head. In this way they can more closely replicate the model of Western Multinationals involving a mix of high-value and low-cost capabilities distributed across different geographic locations. In more direct ways, larger Indian companies also look to their foreign M& as to provide new assets. When Tata Motors purchased the Daewoo Commercial Vehicle Company in 2003 for US$188 million, it did so for the state-of-the-art production facilities of the South Korean company.6 Acquisitions are increasingly prompted, too, by the need for less tangible assets, brand equity in particular. Welspun India bought an 85 percent stake in CHT Holdings for US$24 million to benefit from the premium UK brand Christy, while the Indian pharmaceutical giant Ranbaxy Technologies acquired the French company RPG Aventis in 2003 for US$70 million to gain access to its well-established and respected name. The need to expand product or service portfolio Our analysis reveals that a significant number of Indian companies are endeavouring to increase their market share by building the size of their product and service portfolios. This is particularly true in the pharmaceutical sector. Ranbaxy, for example, acquired 18 generic drug patents from Spanish company EFARMES earlier this year.9 Similarly Nicholas Piramal, an Indian healthcare company, entered into a US$350 million, five-year
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manufacturing agreement with Pfizer to gain 12 products.4 Acting on a similar imperative Sobha Renaissance Information Technology acquired Billing Components to sell products in the telecoms market; previously it had provided only services.10 While these companies are purchasing particular foreign expertise to stay competitive, a number of Indian companies are already competing at a global level and need acquisitions to secure scale. This is a key driver behind Indias latest and biggest cross-border announcement the US$8.1 billion bid by Tata Steel to acquire Corus11 a bold but necessary move to stay competitive in the new, Mittal-Arcelor-dominated global steel market. The pressures of domestic competition As well as pursuing the desire to enter new markets for competitive advantage some companies are being pushed away from India by increasingly stiff domestic competition. In some cases this has encouraged companies to explore opportunities in less competitive markets, thereby spreading their risk across geographies. Though Indias operating environment is unrecognisable from that of a decade ago, some companies still look outside India to avoid domestic obstacles. Indian pharmaceutical companies, for example, often prefer to carry out certain stages of clinical trials in developed markets because of the lag times that are inherent in Indias bureaucratic processes, despite the other cost advantages of keeping them in india. As overseas acquisitions by Indian companies become more frequent, our analysis suggests that a distinctive pattern is beginning to emerge. Indian companies are relatively small by the standards of global multinationals, so their cross-border acquisitions also tend to be smaller. These deals are therefore often carried out as part of a broader globalisation drive involving a string of strategically-targeted acquisitions across an increasingly diverse range of industries. This pattern exhibits the following trends: Deal sizes are increasing but they still have room to grow The value of Indian cross-border M&A deals in the first ten months of 2006 was US$23 billion, compared with US$7.8 billion in the same period the previous year.3 This was partly due to the higher number of large value cross-border deals. In June 2006 alone, 10 deals had a combined transaction value of US$1.5 billion. Acquisitions like Dr Reddys purchase of Betapharm, the fourth-largest drug manufacturer in Germany, for US$570 million in February 2006, and Aban Loyds acquisition of the Norwegian company Sinvest for US$446 million made headlines around the world. Tata Steels US$8.1 billion bid for Corus Steel represents India Inc.s boldest offer to date. The average deal size also has increased from US$32 million in 2005 to US$47million in the first half of 2006. Despite this trend, however, the size of Indias acquisitions is still roughly half the size of average global M&A deals (see Figure 4). Indian companies have tended to follow a string of pearls approach - making a series of small transactions, each with its own strategic rationale, rather than simply buying up expensive competitors. This strategy is different to Chinas expansion which tends to be driven by large-scale, statesponsored organisations that often target large natural resource supplies in developing economies. Acquisitions are helping Indian companies to emerge as significant players on the global stage. Six Indian companies feature in the Fortune Global 500 list of the biggest companies in the world. These are Indian Oil, Reliance Industries, Bharat Petroleum, Hindustan Petroleum, Oil & Natural Gas, and the State Bank of India. Based on current growth and M&A trends, we would expect this number to double by 2010.

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Q.6 Choose any firm of your choice and identify suitable acquisition opportunity and give reasons for the same. Ans: The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. There are 15 different types of actions that a company can take when deciding to move forward using M&A. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the "poison pill". Historically, mergers have often failed to add significantly to the value of the acquiring firm's shares. Corporate mergers may be aimed at reducing market competition, cutting costs (for example, laying off employees, operating at a more technologically efficient scale, etc.), reducing taxes, removing management, "empire building" by the acquiring managers, or other purposes which may or may not be consistent with public policy or public welfare. Thus they can be heavily regulated, for example, in the U.S. requiring approval by both the Federal Trade Commission and the Department of Justice. Cross-Border Merger and Acquisition: In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirer's. For every $1-billion deal, the currency of the target corporation increased in value by 0.5%. More specifically, the report found that in the period immediately after the deal is announced, there is generally a strong upward movement in the target corporation's domestic currency (relative to the acquirer's currency). Fifty days after the announcement, the target currency is then, on average, 1% stronger. The rise of globalization has exponentially increased the market for cross border M&A. In 1996 alone there were over 2000 cross border transactions worth a total of approximately $256 billion. This rapid increase has taken many M&A firms by surprise because the majority of them never had to consider acquiring the capabilities or skills required to effectively handle this kind of transaction. In the past, the market's lack of significance and a more strictly national mindset prevented the vast majority of small and mid-sized companies from considering cross border intermediation as an option which left M&A firms inexperienced in this field. This same reason also prevented the development of any extensive academic works on the subject.
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Due to the complicated nature of cross border M&A, the vast majority of cross border actions have unsuccessful results. Cross border intermediation has many more levels of complexity to it then regular intermediation seeing as corporate governance, the power of the average employee, company regulations, political factors customer expectations, and countries' culture are all crucial factors that could spoil the transaction.[3][4] Because of such complications, many business brokers are finding the International Corporate Finance Group and organizations like it to be a necessity in M&A today. Table 1.1 Largest M&A deals worldwide since 2000: Rank Year Acquirer Transaction Value (in Mil. USD) 2000 Merger : America Online Inc. (AOL) Time Warner 164,747 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961 2004 Royal Dutch Petroleum Co. Shell Transport & Trading Co 74,559 2006 AT&T Inc. BellSouth Corporation 72,671 2001 Comcast Corporation AT&T Broadband & Internet 72,041 Svcs 2004 Sanofi-Synthelabo SA Aventis SA 60,243 2000 Spin-off : Nortel Networks 59,974 Corporation 2002 Pfizer Inc. Pharmacia Corporation 59,515 2004 Merger : JP Morgan Chase & Co. Bank One Corporation 58,761 2006 Pending: E.on AG Endesa SA 56,266 Total 754,738 Source: Institute of Mergers, Acquisitions and Alliances Research, Thomson Financial Target %

1 2 3 4 5 6 7 8 9 10

21.83 10.06 9.87 9.62 9.54 7.98 7.95 7.89 7.79 7.45 100

Table: 1.1 and fig.1.1 show the ten largest M&A deals worldwide since 2000. Table and figure reflects that the largest M & A deal during last 6 year was between American Online Inc and. Time Warner of worth $ 164,747 million during 2000, which account 21.83% of total transaction value of top ten worldwide merger and acquisition deals. While second largest deal was between Glaxo Wellcome Plc. & SmithKline Beecham Plc. Of US $ 75,961 million which was also occurred during 2000, which was 10.06 % of total transaction value of top ten worldwide M & a deals & third largest deal was between Royal Dutch Petroleum Co. Shell Transport & Trading Co of worth US $ 74,559 million, it is 9.87 % of total transaction value of top ten worldwide M & a deals. Cross-border Merger and acquisition: India
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Until upto a couple of years back, the news that Indian companies having acquired AmericanEuropean entities was very rare. However, this scenario has taken a sudden U turn. Nowadays, news of Indian Companies acquiring a foreign businesses are more common than other way round. Buoyant Indian Economy, extra cash with Indian corporates, Government policies and newly found dynamism in Indian businessmenhave all contributed to this new acquisition trend. Indian companies are now aggressively looking at North American and European markets to spread their wings and become the global players. The Indian IT and ITES companies already have a strong presence in foreign markets, however, other sectors are also now growing rapidly. The increasing engagement of the Indian companies in the world markets, and particularly in the US, is not only an indication of the maturity reached by Indian Industry but also the extent of their participation in the overall globalization process. Table1.2: The top 10 acquisitions made by Indian companies worldwide: Acquirer Tata Steel Hindalco Videocon Dr. Reddy's Labs Suzlon Energy HPCL Target Company Corus Group plc Novelis Daewoo Electronics Corp. Betapharm Country targeted UK Canada Korea Germany Belgium Kenya Romania Singapore France Canada Deal value ($ ml) 12,000 5,982 729 597 565 500 324 293 290 239 Industry Steel Steel Electronics Pharmaceutical Energy Oil and Gas Pharmaceutical Steel Electronics Telecom

Hansen Group Kenya Petroleum Refinery Ltd. Ranbaxy Labs Terapia SA Tata Steel Natsteel Videocon Thomson SA VSNL Teleglobe

If you calculate top 10 deals itself account for nearly US $ 21,500 million. This is more than double the amount involved in US companies' acquisition of Indian counterparts.Graphical representation of Indian outbound deals since 2000. Figure 1.2

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Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased to US$ 4.3 billion in 2005 , and further crossed US$ 15 billion-mark in 2006. In fact, 2006 will be remembered in India's corporate history as a year when Indian companies covered a lot of new ground. They went shopping across the globe and acquired a number of strategically significant companies. This comprised 60 per cent of the total mergers and acquisitions (M&A) activity in India in 2006. And almost 99 per cent of acquisitions were made with cash payments. Table 1.3: Cross-border Merger and acquisition: India (US $ Million) Year Sales 2000 1219 2001 1037 2002 1698 2003 949 2004 1760 2005 4210 Total 10873 Source: UNCTAD world investment report 2006 Purchases 910 2195 270 1362 863 2649 8249

Table 1.3 & figure 1.3 exhibit Cross border merger and acquisition in India for the period 2000 to 2005. Table shows the cross border sales deals during 2000 were 1219 US $ million while purcahse deal were 910 US $ million.But during 2005, these have been increased to 4210 US $ million and 2649 US $ million. While overall sales are 10,873 US $ million and purchase deals were 8249 US $ million during last five years. So table clearly depicts that our cross border merger and acquisition sales deals are more then purchase deals. Table 1.4: Foreign acquisition by Indian firms 2000-2006

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Table 1.4: Reflects the foreign acquisition by Indian firms during last 6 years. Table clearly depicts that % of foreign acquisition by Indian firms was highest in IT/Software and BPO sector, i.e., 29.4% while foreign acquisition by Indian firms in pharmaceuticals & healthcare sector was 20.3% during last 6 years Which was second highest. Number of foreign acquisition is also highest in IT/Software and BPO sector i.e., 90 firms while pharmaceuticals & healthcare sector and other sectors are in second number with 62 foreign acquisition. While in the automotive, chemical & fertilizers, Consumer goods, metals and mining and oil and gas sectors, the number of firms acquired by Indian firms were 27 firms, 19 firms, 17 firms, 15 firms and 14 firms respectively.

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