DISSERTATION

ON MERGERS AND AQUISITIONS

Submittedby: Kanak Rai Roll- BUR MBA (HR) No- 2010/13 Department of Business Administration (Human Resource) Centre of Management Studies The University of Burdwan Session: 2010-11

Introduction

MERGERS & ACQUISITIONS

-GLOBAL AND INDIAN PERSPECTIVES Introduction: Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of whether you should cheer or weep when a company you own buys another company -or is bought by one. You will also be aware of the tax consequences for companies and for investors.

Synopsis:

1. Definition

2. Main idea 3. Synergy 4. Types 5. Acquisitions 6. Cost involved in M & a 7. Impact of M & A 8. M & A in India 9. Preventing failures in M & A 10.Conclusion & references

Definition:

The phrase mergers and acquisitions (abbreviated M&A) is defined as 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. The Main Idea: One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Synergy: Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following: Staff reductions -As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.

 Economies of scale -Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies -when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.

Acquiring new technology -To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge. Improved market reach and industry visibility -Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two. Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a later section of this tutorial.

Types of Mergers:
From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging: Horizontal merger -Two companies that are in direct competition and share the same product lines and markets. Vertical merger -A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker. Market-extension merger -Two companies that sell the same products in different markets. Product-extension merger -Two companies selling different but related products in the same market. Conglomeration - Two companies that have no common business areas. There are two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors: Purchase Mergers -As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company. We will discuss this further in part four of this tutorial. Consolidation Mergers -With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

Acquisitions:
As you can see, an acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another - there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile. In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business. Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.

Identifying the sensitive issues

The common HR issues that has to be identified

Communication organizations Vision.

Deciding fair principle on the handling Of salary scale

Comparing terms & conditions of employment and redundancy.

understanding the existing skill of the present HR.

offering choice flexibility.

Identification the gap and feeling up those areas

Figure: Model

Process of Mergers and Acquisitions:

The process of merger and acquisition has the following steps: Market Valuation Before you go for any merger and acquisition, it is of utmost important that you must know the present market value of the organization as well as its estimated future financial performance. The information about organization, its history, products/services, facilities and ownerships are reviewed. Sales organization and marketing approaches are also taken into consideration. Exit Planning The decision to sell business largely depends upon the future plan of the organization what does it target to achieve and how is it going to handle the wealth etc. Various issues like estate planning, continuing business involvement, debt resolution etc. as well as tax issues and business issues are considered before making exit planning. The structure of the deal largely depends upon the available options. The form of compensation (such as cash, secured notes, stock, convertible bonds, royalties, future earnings share, consulting agreements, or buy back opportunities etc.) also plays a major role here in determining the exit planning. Structured Marketing Process This is merger and acquisition process involves marketing of the business entity. While doing the marketing, selling price is never divulged to the potential buyers. Serious buyers are also identified and then encouraged during the process. Following are the features of this phase. Seller agrees on the disseminated materials in advance. Buyer also needs to sign a Non-Disclosure agreement. Seller also presents Memorandum and Profiles, which factually showcases the business.

. Database of prospective buyers are searched. Assessment and screening of buyers are done.

Special focuses are given on he personal needs of the seller during structuring of deals. Final letter of intent is developed after a phase of negotiation. Letter of Intent Both, buyer and seller take the letter of intent to their respective attorneys to find out whether there is any scope of further negotiation left or not. Issues like price and terms, deciding on due diligence period, deal structure, purchase price adjustments, earn out provisions liability obligations, ISRA and ERISA issues, Non-solicitation agreement, Breakup fees and no shop provisions, pre closing tax liabilities, product liability issues, post closing insurance policies, representations and warranties, and indemnification issues etc. are negotiated in the Letter of Intent. After reviewing, a Definitive Purchase Agreement is prepared. Buyer Due Diligence This is the phase in the merger and acquisition process where seller makes its business process open for the buyer, so that it can make an in-depth investigation on the business as well as its attorneys, bankers, accountants, tad advisors etc. Definitive Purchase Agreement Finally Definitive Purchase Agreement are made, which states the transaction details including regulatory approvals, financing sources and other conditions of sale Strategic Process of Mergers and Acquisition: The merger and acquisition strategies may differ from company to company and also depend a lot on the policy of the respective organization. However, merger and acquisition strategies have got some distinct process, based on which, the strategies are devised.

Determine Business Plan Drivers Merger and acquisition strategies are deduced from the strategic business plan of the organization. So, in merger and acquisition strategies, you firstly need to find out the way to accelerate your strategic business plan through the M&A. While chalking out strategies, you need to consider the points like the markets of your intended business, the market share that you are eyeing for in each market, the products and technologies that you would require, the geographic locations where you would operate your business in, the skills and resources that you would require, the financial targets, and the risk amount etc. Determine Acquisition Financing Constraints Now, you need to find out if there are any financial constraints for supporting the acquisition. Funds for acquisitions may come through various ways like cash, debt, public and private equities, PIPEs, minority investments, earn outs etc. You need to consider a few facts like the availability of untapped credit facilities, surplus cash, or untapped equity, the amount of new equity and new debt that your organization can raise etc. You also need to calculate the amount of returns that you must achieve. Develop Acquisition Candidate List now you have to identify the specific companies (private and public) that you are eyeing for acquisition. You can identify those by market research, public stock research, referrals from board members, investment bankers, investors and attorneys, and even recommendations from your employees. You also need to develop summary profile for every company. Build Preliminary Valuation Models This stage is to calculate the initial estimated acquisition cost, the estimated returns etc. Many organizations have their own formats for presenting preliminary valuation.

Rate/Rank Acquisition Candidates Rate or rank the acquisition candidates according to their impact on business and feasibility of closing the deal. This process will help you in understanding the relative impacts of the acquisitions. Review and Approve the Strategy This is the time to review and approve your merger and

acquisition strategies. You need to find out whether all the critical stakeholders like board members, investors etc. agree with it or not. If everyone gives their nods on the strategies, you can go ahead with the merger or acquisition. Costs involved in M & A: Costs of mergers and acquisitions are an important and integral part of mergers and acquisitions process. Before going for any merger or acquisition, both the companies calculate the costs of mergers and acquisitions to find out the viability and profitability of the deal. Based on the calculation, they decide whether they should go with the deal or not. In mergers and acquisitions, both the companies may have different theories about the worth of the target company. The seller tries to project the value of the company high, whereas buyer will try to seal the deal at a lower price. There are a number of legitimate methods for valuation of companies. Valuation in M & A There are a number of methods used in mergers and acquisition valuations. Some of those can be listed as: Replacement Cost Method In Replacement Cost Method, cost of replacing the target company is calculated and acquisitions are based on that. Here the value of all the equipments and staffing costs are taken into consideration. The acquiring company offers to buy all these from the target company at the given cost. Replacement cost method isn't applicable to service industry, where key assets

(people and ideas) are hard to value. Discounted Cash Flow (DCF) Method Discounted Cash Flow (DCF) method is one of the major valuation tools in mergers and acquisitions. It calculates the current value of the organization according to the estimated future cash flows. Estimated Cash Flow = Net Income + Depreciation/Amortization - Capital Expenditures Change in Working Capital These estimated cash flows are discounted to a present value. Here, organization's Weighted Average Costs of Capital (WACC) is used for the calculation. DCF method is one of the strongest methods of valuation. Economic Profit Model In this model, the value of the organization is calculated by summing up the amount of capital invested and a premium equal to the current value of the value created every year moving forward. Economic Profit = Invested Capital x (Return on Invested Capital - Weighted Average Cost of Capital) Economic Profit = Net Operating Profit Less Adjusted Taxes - (Invested Capital x Weighted Average Cost of Capital) Value = Invested Capital + Current Value of Estimated Economic Profit Price-Earnings Ratios (P/E Ratio) This is one of the comparative methods adopted by the acquiring companies, based on which they put forward their offers. Here, acquiring company offers multiple of the target company's earnings.

Enterprise-Value-to-Sales Ratio (EV/Sales) Here, acquiring company offers multiple of the revenues. It also keeps a tab on the price-tosales ratio of other companies.

Impact of M & A:
Impacts on Employees Mergers and acquisitions may have great economic impact on the employees of the organization. In fact, mergers and acquisitions could be pretty difficult for the employees as there could always be the possibility of layoffs after any merger or acquisition. If the merged company is pretty sufficient in terms of business capabilities, it doesn't need the same amount of employees that it previously had to do the same amount of business. As a result, layoffs are quite inevitable. Besides, those who are working would also see some changes in the corporate culture. Due to the changes in the operating environment and business procedures, employees may also suffer from emotional and physical problems. Impact on Management The percentage of job loss may be higher in the management level than the general employees. The reason behind this is the corporate culture clash. Due to change in corporate culture of the organization, many managerial level professionals, on behalf of their superiors, need to implement the corporate policies that they might not agree with. It involves high level of stress. Impact on Shareholders Impact of mergers and acquisitions also include some economic impact on the shareholders. If it is a purchase, the shareholders of the acquired company get highly benefited from the acquisition as the acquiring company pays a hefty amount for the acquisition. On the other hand, the shareholders of the acquiring company suffer some losses after the acquisition due to the acquisition premium and augmented debt load.

Impact on Competition Mergers and acquisitions have different impact as far as market competitions are concerned. Different industry has different level of competitions after the mergers and acquisitions. For example, the competition in the financial services industry is relatively constant. On the other hand, change of powers can also be observed among the market players. Distinction between Mergers and Acquisitions: Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders. Though the two words mergers and acquisitions are often spoken in the same breath and are also used in such a way as if they are synonymous, however, there are certain differences between mergers and acquisitions. Merger and Acquisition The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately. The case when one company takes over another and establishes itself as the new owner of the business. The stocks of both the companies are surrendered, while new stocks are issued afresh. The buyer company swallows the business of the target company, which ceases to exist. For example, Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company, known as Glaxo SmithKline. Dr. Reddy's Labs acquired Betapharm through an agreement amounting $597 million. A buyout agreement can also be known as a merger when both owners mutually decide to combine their business in the best interest of their firms. But when the agreement is hostile, or when the target firm is unwilling to be bought, it is considered as an acquisition.

Mergers and Acquisitions in India: The practice of mergers and acquisitions has attained considerable significance in the contemporary corporate scenario which is broadly used for reorganizing the business entities. Indian industries were exposed to plethora of challenges both nationally and internationally, since the introduction of Indian economic reform in 1991. The cut-throat competition in international market compelled the Indian firms to opt for mergers and acquisitions strategies,

making it a vital premeditated option. Why Mergers and Acquisitions in India: The factors responsible for making the merger and acquisition deals favorable in India are: Dynamic government policies Corporate investments in industry Economic stability ready to experiment attitude of Indian industrialists Sectors like pharmaceuticals, IT, ITES, telecommunications, steel, construction, etc, have proved their worth in the international scenario and the rising participation of Indian firms in signing M&A deals has further triggered the acquisition activities in India. In spite of the massive downturn in 2009, the future of M&A deals in India looks promising. Indian telecom major Bharti Airtel is all set to merge with its South African counterpart MTN, with a deal worth USD 23 billion. According to the agreement Bharti Airtel would obtain 49% of

Ten Biggest M & A deals in India: Tata Steel acquired 100% stake in Corus Group on January 30, 2007. It was an all cash deal which cumulatively amounted to $12.2 billion. Vodafone purchased administering interest of 67% owned by Hutch-Essar for a total worth of $11.1 billion on February 11, 2007. India Aluminium and copper giant Hindalco Industries purchased Canada-based firm Novelis Inc in February 2007. The total worth of the deal was $6-billion. Indian pharma industry registered its first biggest in 2008 M&A deal through the acquisition of Japanese pharmaceutical company Daiichi Sankyo by Indian major Ranbaxy for $4.5 billion. The Oil and Natural Gas Corp purchased Imperial Energy Plc in January 2009. The

deal amounted to $2.8 billion and was considered as one of the biggest takeovers after 96.8% of London based companies' shareholders acknowledged the buyout proposal. In November 2008 NTT DoCoMo, the Japan based telecom firm acquired 26% stake in Tata Teleservices for USD 2.7 billion. India's financial industry saw the merging of two prominent banks - HDFC Bank and Centurion Bank of Punjab. The deal took place in February 2008 for $2.4 billion. Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in March 2008. The deal amounted to $2.3 billion. 2009 saw the acquisition Asarco LLC by Sterlite Industries Ltd's for $1.8 billion making it ninth biggest-ever M&A agreement involving an Indian company. In May 2007, Suzlon Energy obtained the Germany-based wind turbine producer Repower. The 10th largest in India, the M&A deal amounted to $1.7 billion. Laws governing M & A in India: Mergers and Acquisitions in India are governed by the Indian Companies Act, 1956, under Sections 391 to 394. Although mergers and acquisitions may be instigated through mutual agreements between the two firms, the procedure remains chiefly court driven. The approval of the High Court is highly desirable for the commencement of any such process and the proposal for any merger or acquisition should be sanctioned by a 3/4th of the shareholders or creditors present at the General Board Meetings of the concerned firm. Indian antagonism law permits the utmost time period of 210 days for the companies for going ahead with the process of merger or acquisition. The allotted time period is clearly different from the minimum obligatory stay period for claimants. According to the law, the obligatory time frame for claimants can either be 210 days commencing from the filing of the notice or acknowledgment of the Commission's order.

The entry limits for companies merging under the Indian law are considerably high. The entry limits are allocated in context of asset worth or in context of the company's annual incomes. The entry limits in India are higher than the European Union and are twofold as compared to the United Kingdom. The Indian M&A laws also permit the combination of any Indian firm with its international counterparts, providing the cross-border firm has its set up in India. There have been recent modifications in the Competition Act, 2002. It has replaced the voluntary announcement system with a mandatory one. Out of 106 nations which have formulated competition laws, only 9 are acclaimed with a voluntary announcement system. Voluntary announcement systems are often correlated with business ambiguities and if the companies are identified for practicing monopoly after merging, the law strictly order them opt for de-merging of the business identity. Provisions under M & A laws in India: Provision for tax allowances for mergers or de-mergers between two business identities is allocated under the Indian Income tax Act. To qualify the allocation, these mergers or de-mergers are required to full the requirements related to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the pertinent state of affairs. Under the Indian I-T tax Act, the firm, either Indian or foreign, qualifies for certain tax exemptions from the capital profits during the transfers of shares. In case of foreign company mergers, a situation where two foreign firms are merged and the new formed identity is owned by an Indian firm, a different set of guidelines are allotted. Hence the share allocation in the targeted foreign business identity would be acknowledged as a transfer and would be chargeable under the Indian tax law. As per the clauses mentioned under section 5(1) of the Indian Income Tax Act, the international earnings by an Indian firm would fall under the category of 'scope of income' for

the Indian firm. Asset Stripping Asset Stripping is the process in which a firm takes over another firm and sells its asset in fractions in order to come up with a cost that would match the total takeover expenditure. Demerger or Spin off Demerger refers to the practice of corporate reorganization. During this process a fraction of the firm may break up and establish itself as a new business identity. Black Knight The term generally refers to the firm which takes over the target firm in a hostile manner. Carve - out The procedure of trading a small part of the firm as an Initial Public Offering is known as carve-out. Poison Pill or Suicide Pill Defense Poison Pill is an approach which is adopted by the target firm to present itself as less likable for an unfriendly subjugation. The shareholders have full privilege to exchange their bonds at a premium if the buyout takes place. Greenmail Greenmail refers to the state of affairs where the target firm buys back its own assets or shares from the bidding firm at a greater cost. Dawn Raid The process of purchasing shares of the target firm anticipating the decline in market costs till the completion of the takeover is known as Dawn Raid. Grey Knight A firm that acquires another under ambiguous conditions or without any comprehensible intentions is known as a grey knight. Macaroni Defense Macaroni Defense is an approach that is implemented by the firms to protect them from any hostile subjugation. A company can prevent itself by issuing bonds that can be exchanged at a higher price. Management Buy In This term refers to the process where a firm buys and invests

in another and employs their managers and officials to administer the new established business identity. Hostile Takeover Unfriendly or Hostile acquisitions takes place when the management of the target firm does not have any prior knowledge about it or does not mutually agree for the proposal. The disagreements between the chief executives of the target firm may not be long-lasting and the hostile subjugation may take up the form of friendly takeover. This practice is prevalent among the British and American firms. However, some of them are still against hostile subjugations. Management Buy Out A management buy out refers to the process in which the management buys a firm in collaboration with its undertaking entrepreneurs. Failures in M & A: Despite the highest degree of strategy and planning and investments of hundreds of crores, the majority of the mergers and acquisitions cannot create a value and fail miserably. In 1987, the professor of Harvard, Michael Porter found that around 50% to 60% of the mergers and acquisitions ended in a failure. In 2004, McKinsey also found that only 23% acquisitions ended in a positive note on investment. There are several explanations for failure of mergers and acquisitions. Let's find out why majority of the mergers and acquisitions fail. Why M & A fail? There could be several reasons behind the failure of mergers and acquisitions. Many company look mergers and acquisitions as the solution to their problems. But before going for merger and acquisition, they do not introspect themselves. Before an organization can go for mergers and acquisitions, it needs to consider a lot. Both the parties, viz. buyer and seller need to do proper research and analysis before going for mergers and acquisitions. Following could be the reasons behind the failure of mergers and acquisitions.

Cultural Difference One of the major reasons behind the failure of mergers and acquisitions is the cultural difference between the organizations. It often becomes very tough to integrate the cultures of two different companies, who often have been the competitors. The mismatch of culture leads to deterring working environment, which in turn ensure the downturn of the organization. Flawed Intention Flawed intentions often become the main reason behind the failure of mergers and acquisitions. Companies often go for mergers and acquisitions getting influenced by the booming stock market. Sometimes, organizations also go for mergers just to imitate others. In all these cases, the outcome can be too encouraging. Often the ego of the executive can become the cause of unsuccessful merger. Top executives often tend to go for mergers under the influence of bankers, lawyers and other advisers who earn hefty fees from the clients. Mergers can also happen due to generalized fear. The incidents like technological advancement or change in economic scenario can make an organization to go for a change. The organization may end up in going for a merger. Due to mergers, managers often need to concentrate and invest time to the deal. As a result, they often get diverted from their work and start neglecting their core business. The employees may also get emotionally confused in the new environment after the merger. Hence, the work gets hampered. How to prevent failure? Several initiatives can be undertaken in order to prevent the failure of mergers and acquisitions. Following are those: Continuous communication is of utmost necessary across all levels employees, stakeholders, customers, suppliers and government leaders.

Managers have to be transparent and should always tell the truth. By this way, they can win the trust of the employees and others and maintain a healthy environment. During the merger process, higher management professionals must be ready to greet a new or modified culture. They need to be very patient in hearing the concerns of other people and employees. Management need to identify the talents in both the organizations who may play major roles in the restructuring of the organization. Management must retain those talents. Conclusion: One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals. Summary: A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another. The functions of synergy allow for the enhanced cost efficiency of a new entity made

from two smaller ones - synergy is the logic behind mergers and acquisitions. Acquiring companies use various methods to value their targets. Some of these methods are based on comparative ratios - such as the P/E and P/S ratios -replacement cost or discounted cash flow analysis. An M&A deal can be executed by means of a cash transaction, stock-forstock transaction or a combination of both. A transaction struck with stock is not taxable. Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds unlock hidden shareholder value and sharpen management focus. De-mergers can occur by means of divestitures, carve-outs spinoffs or tracking stocks. Mergers can fail for many reasons including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of dayto-day operations.

References: 1. http://www.investopedia.com/university/mergers/default.asp 2. http://en.wikipedia.org/wiki/Mergers_and_acquisitions 3. http://business.mapsofindia.com/finance/mergers-acquisitions/mergers-andacquisitions. html