Dissertation For Finance

www.projectsdeal.
com
Call us: (+91)9881820151
Impact of Mergers and Acquisitions on Acquiring Firms Performance
www.projectsdeal.com
Call us: (+91)9881820151
Call us: (+91)9881820151
ANGLIA RUSKIN UNIVERSITY Dissertation Declaration

Title of Award ____________________________________
Date ____________________________________
SID Number _____________________________________
Name of Supervisor _____________________________________
Title of Dissertation _____________________________________ _____________________________________ _____________________________________
Word Count _____________________________________
DECLARATION: I declare that the above work is my own and that the material contained herein has not been substantially used in any other submission for an academic award. Signed: Date:
All dissertations, projects etc, submitted as part of an assessment process for a degree become University property once handed in, and are not normally available to be returned. It is therefore recommended that candidates retain a personal copy. The submitted copy may be retained by the University for reference by others.
Call us: (+91)9881820151
Call us: (+91)9881820151
abstract
The number of companies planning for Mergers and Acquisitions are growing year on year. This compels us to think of what impact such activities will have on acquiring a firms performance and on its shareholders. This study will be undertaken with the help of comprehensive data comprising of the share price of merged or acquired firms, companies postmerger financial performance and shareholders behaviour post acquisition. In a merger, companies buy or sell different or similar companies which help them to grow and create synergy. The motive behind these activities is either expansion or entering into new geographies or new products. With the aim of trying to understand the process, the motives and the impact, this study was carried out with the help of primary and secondary research. But the emphasis was mainly on primary research because it enables us to actually understand the nature and psychology of investors in order to better understand their preferences. As secondary research, we have calculated beta of the company share price. Various other techniques have been adopted by various researchers such as regression analysis or correlation, however, this particular technique was adopted for the purposes of this study because the overall impact of M&A can be seen in the share price of a company. If beta of the stock is positive, it proves that the M&A was beneficial for the company. For the purposes of the primary analysis, company executives were asked 10 questions pertaining to their investment priorities and their general view regarding companies and their markets. The findings of this study indicate that Mergers and Acquisitions impact companies positively if they are carried out in a proper and planned manner. Extensive research on markets and companies along with it being the right time helps for better, more comprehensive decisions to be made. A wrong decision can influence the company and result in losing the confidence of shareholders.
Call us: (+91)9881820151
Call us: (+91)9881820151
Call us: (+91)9881820151
Call us: (+91)9881820151
Table of Contents
abstract ......................................................................................................................................................... 3 List of Charts & Tables .................................................................................................................................. 6 Chapter 1-Introduction ................................................................................................................................. 7 1.1 Introduction ........................................................................................................................................ 7 1.2 Motives behind Mergers ................................................................................................................... 12 1.3 The Process of Mergers & Acquisitions ............................................................................................ 15 1.4 Types of Merger & Acquisition ......................................................................................................... 18 1.5 Objective and Significance of the study ............................................................................................ 23 1.6 Hypothesis: ....................................................................................................................................... 24 Chapter 2- Literature Review ...................................................................................................................... 26 2.1 Introduction ...................................................................................................................................... 26 2.2 Studies by Researchers on Mergers and Acquisitions ...................................................................... 27 Chapter 3 Methodology .............................................................................................................................. 36 3.1 Methodology Literature .................................................................................................................... 36 3.2 Method Adopted............................................................................................................................... 37 Chapter 4 Results ........................................................................................................................................ 40 Chapter 5 Analysis and Discussion Analysis ................................................................................................ 42 5.1 Secondary Research .............................................................................................................................. 42 5.1.1 Tata Corus Acquisition ............................................................................................................ 42 5.1.2 HCL- Axon Acquisition ................................................................................................................ 52 5.2 Primary Research .............................................................................................................................. 57 5.3 Limitations of the Study .................................................................................................................... 68 Chapter 6 Conclusions and Recommendations .......................................................................................... 69 6.1 Conclusions ....................................................................................................................................... 69 6.2 Recommendations ............................................................................................................................ 70 References .................................................................................................................................................. 71 Appendices.................................................................................................................................................. 75
Call us: (+91)9881820151
Call us: (+91)9881820151
List of Charts & Tables
Tables Table 4.1: Results of the Analysis and Calculations for Tata Steel Table 4.2: Results of the Analysis and Calculations for HCL Technologies Table 5.1: Sales and Production figures (in million tonnes) Table 5.2: Financial Ratios of TATA Steel Table 5.3: Financial Ratios of the HCL Technologies 40 40 42 42 52
Charts Chart 1.1: Companies Acquired in UK in the last 10 years Chart 1.2: No. of acquisitions made abroad by UK companies Chart 1.3: Process of M&A Chart 5.1: Shareholding Pattern of Tata Steel Chart 5.2: Tata Share price movement with S&P CNX Nifty Chart 5.3: HCL- Axon Acquisition Chart 5.4: Share Price Movement of HCL with Nifty 7 6 15 42 42 52 52
Call us: (+91)9881820151
Call us: (+91)9881820151
Chapter 1-Introduction
1.1 Introduction The recent boost in merger and acquisition activities persuades us to think about its causes. Expansion strategy is the primary reason behind a company going in for a merger or an acquisition. The occurrence of various mergers, acquisitions, and divestitures in the recent past has generated this need of paying more attention on analysing the impact of such transactions on the participating firms and its employees. Transactions like Mergers and Acquisitions are considered to be the best method of attaining growth targets and simultaneously increasing the shareholders value, which is the primary objective of every company. A Merger or an Acquisition is that transaction through which companies combine to become one (for e.g. Weston & Copeland, 1992). According to Investopedia, Merger is defined as the combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Acquisition is defined as a corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are usually considered to be the growth strategy of a company through which it benefits more by the taking over of an existing company rather than expanding itself or investing highly. The mode of payment for an acquisition can be either cash or in the form of stocks. The nature of an acquisition can be either friendly or hostile. Acquisitions which are called friendly are those in which the targeted firm agrees to get acquired. On the other hand, hostile acquisitions are those in which the target company is not in agreement with the acquisition but the acquiring company buys a huge stake in it and becomes the majority stakeholder. Firms effect major changes in their business mix through mergers and acquisitions. M&A also change corporate ownership patterns and control. Such exercises are popularly termed as corporate restructurings in the business world. Through capital restructuring, business undertakings of firms are re-arranged and at times ownership patterns of firms or their undertakings are altered. Mergers and acquisitions can only add to a firms business undertakings. Firms have various other tools which they can employ in order to avoid or actively disengage from businesses they
www.projectsdeal.com Call us: (+91)9881820151
Call us: (+91)9881820151
do not like anymore. Such a process of getting rid of business undertakings or of divestiture is also an intrinsic part of the study of mergers and acquisitions. In this league, a more similar process is called a spin-off. M&A have been fairly common for many years. During the last decade or so, the pace has increased throughout the world; perhaps due to technological changes, globalisation & freer trade, deregulation, economies of scale, economies of scope and complementarily changes in industrial organisation, individual entrepreneurship, rising stock prices, low interest rates, or strong economic growth. All of the above mentioned factors can individually force companies to merge. Trends in the Merger and Acquisition in UK: When we compare figures from the last quarter of the year 2010 with the first quarter of the financial year 2011, there is a very significant increase in the expenditure incurred by companies on mergers and acquisitions. Expenditure on acquisition incurred by UK based companies in acquiring firms in other parts of the world amounted to 18.3 billion in the first quarter of the financial year 2011, whereas, the same was 3.8 billion in the last year in the fourth quarter. It is considered as the highest registered value of the outward investment by UK companies in any quarter since the fourth quarter of 2007.
Table 1.1: Important Acquisitions made by UK based companies are as follows: Transaction Yule Catto & Co Plc acquiring PolymerLatex Beteiligungsgesellschaft mbH Anglo American Plc disposing of Lisheen Zinc Mine Vedanta Resources Plc acquiring Lisheen Zinc Mine Candover Investments Plc disposing of Equity Trust Holding Sarl Misys Plc acquiring Sophis Holding (Luxembourg) SCA RSA Insurance Group Plc acquiring GCAN Insurance Company RPC Group Ltd acquiring Superfos Industries A/S -336 336 289 240 221 205 Source: http://www.ons.gov.uk Value in million 376
Call us: (+91)9881820151
Call us: (+91)9881820151
Chart 1.1: Companies Acquired in UK in last 10 years

869 741 558 462 430 286 325 769 779
558
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: www.econstats.com Chart 1.1 shows companies acquired in the UK in the last 10 years. It can be seen that in 2007, there was a boom in M&A transactions following the global recession and a decrease in registered M&A transactions in 2008. Transactions by foreign companies in the UK: A slowdown was registered in the expenditure on the acquisitions in the UK by companies from foreign. In the first quarter of financial year 2011 the expenditures registered are 6.4 billion compared to the fourth quarter of year 2010. The acquisition of British Airways plc by BA holdc S.A was one of the large inward acquisitions in this quarter. It was a part of the transaction between British Airways plc and Iberia, Lineas Aereas de Espana S.A. which merged to form the IAG (International Airlines Group). Table 1.2: Important Transactions made by foreign Companies in UK are as follows: Transactions General Electric Company acquiring Wellstream Holdings Plc Laxey Partners Ltd disposing of Laxey Logistics Ltd Norbert Dentressangle S.A acquiring Laxey Logistics Ltd Value in million 800 209 209 Source: http://www.ons.gov.uk
Call us: (+91)9881820151
Chart 1.2: No. of acquisitions made abroad by UK companies

500 450 400 350 300 250 200 150 100 50 0 441 371 305 262 243 199 118 405 365 298
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: www.econstats.com
The expenses undertaken by the companies from UK on UK companies for acquisition also in the first quarter of 2011 fell down to 1.2 billion compared to the last quarter of 2010 which was 6.3 billion. It is considered as the lowest registered expenditure since 2009 second quarter and consider as the second lowest since 1992 third quarter. Table 1.3Transactions made in UK by the UK organizations includes: Transactions BTG Plc acquiring Biocompatibles International Plc Acromas Holdings Ltd acquiring Nestor Healthcare Group Plc Value in million
172 133
Source: http://www.ons.gov.uk
There are some other terms wrongly considered to be similar to Merger/ Acquisition. Divestment is one such term -even spin off and takeovers fall in the category of terms wrongly interpreted as M&A.
Call us: (+91)9881820151
Call us: (+91)9881820151
Divestment: Divestment is also referred to as divestiture and it is an exact opposite of the term investment. It is the process of selling an asset to achieve financial or social goals. Motives behind firms going for divestment are: A company divests its business which is not the part of its core operations and instead focuses on an operation in which the company excels. Another big motivational factor behind companies going for divestment is obtaining funds. It helps in generating funds for the company by selling one of the businesses to other firm and receiving cash in exchange. Another motive could be to create stability in the company by divesting a part. If a division of the company is not performing well or is unable to create revenues, a company could go for divesting that division. . Spin Off: When a separate business is formed due to the splitting of existing sections of a company, it is called spin off. This corporate action is also referred to as Splits-Off. In a spin off a new company comes into existence and existing shareholders (before spin off) get the same proportion of shares in the new company as their holding in the parent company on pro rata basis. Usual practice shows that it is mostly the same management teams of the parent company that start work in the new one. A spin-off usually offers divisions the opportunity of being backed by a parent company but not be effected by its perception in the market or within stakeholders, giving them the motivation to take exciting ideas which have been stuck in the bottlenecks of the old environment to the new one and nurture them. Some renowned examples of spin-offs are listed below: In the year 1999, Agilent Tech. spun out of HP (Hewlett-Packard). In the year 2009, A split off in Encana Corporation formed Cenovus Energy. Recently in September 2011, Ocean Rig UDW Inc spun out of Dryships Inc.
Takeover: A takeover means buying of a company by another which is listed on the stock exchange. Takeovers can be of various types- Hostile, Friendly, Reverse and Backflip. A takeover is vastly different from a merger. Mutual consent amongst participating companies is a must in the case of a merger. In a takeover, a company decides, usually unilaterally, to acquire shares of another company (called Target Company) direct from the targets shareholders and
Call us: (+91)9881820151
may offer its own (bidding company) shares or cash (or may be a combination of both shares and cash) in compensation. After a successful takeover, the acquirer can either merge the target with it or let the target exist and carry on its undertaking. In takeovers, the targets board does not get involved until there is a need to defend the bid. Mergers cannot proceed without the active participation of the boards of the two companies. A takeover is often referred to as an acquisition. The department of banking firms advising on mergers and takeovers is called Merger & Acquisition or M&A department 1.2 Motives behind Mergers When someone talks about Mergers/Acquisitions, one thing which comes to mind is the motive behind these activities. Why does a company go to merge with another company? The bottom line is that there can be only one fruitful reason for a merger - firms merging are worth more together than apart. In many mergers, value erosion takes place with time though they made economic sense at the beginning - usually due to integration failure. Mergers can also fail because people are not happy with the acquirer company leaving. The motives behind companies going for a merger are as follows: Growth The most common motive for companies merging is growth. Firms can grow either internally or by merging or acquiring another company. The internal growth process is slow and not that effective for a firm if it is looking for the advantage of taking opportunities with the help of a company moving ahead of it. The other alternative to this, which is much faster, is a merger or an acquisition. In most cases the bidding firm has to pay a premium on the actual cost of resources that it is acquiring, however, when you compare this premium with the kind of growth bidding firm may achieve with the acquisition, the premium will seem worth paying. As such, internally developing resources and skill sets is a lengthy and costly process. Hence, barring a few exceptional cases, it has been observed that mergers and acquisitions fuel the growth of a company at much faster pace. Synergy - The second most prominent motive for companies deciding to merge is Synergy. When two companies combine, additional value is generated owing to the individual strengths of both companies, this is termed as Synergy; its sources are new opportunities not available to these firms operating independently. The simple equation is when two firms combine they yield
Call us: (+91)9881820151
a more valuable entity rather than if the companies work independently and their value is being added. Synergy is often quoted as the motive for companies merging but it is hard to realize the synergetic gains. Synergy is segregated into: Operating synergies- When a company is able to add on to its growth and increase its operating income by utilizing the same assets, it is called operating synergy. In the case of horizontal mergers economies of scale usually exists. When two companies operating in the same sector merge, on one hand their market share combines and on the other hand it reduces the competition to give them a stronger position in the market place thereby increasing their pricing power. Every company has its own core competency, a company with its core competency as marketing can be acquired by a company whose core competency is in developing a very good product line, thereby increasing their strength in the market place (For e.g. Transelectra has been acquired by Godrej Industries). Higher growth is generally observed in the new or existing markets. Operating synergies usually affect the margins of the company, growth and returns on the stock market. This in turn increases the value of the firms participating in a merger or an acquisition. Financial synergies- This includes benefits from taxes, diversification, and capacity of higher debts and usage of more cash. They sometimes show up as higher cash flows and sometimes take the form of lower discount rates. Financial synergies are seen when two firms combine, one with excess cash and having less projects and opportunities and other firm with projects having high returns and less cash. Increase in value comes from projects that can be taken on with the excess cash which could otherwise not been taken. An increase can be seen in the debt capacity of the company, the reason behind it being that when two firms combine through merger/acquisition, higher stability will be seen in the earnings and cash flows of the companies. This allows higher borrowings giving higher tax benefits leading to, usually, a combined firm whose cost of capital is less. Benefit from taxes can also be a by-product of acquisitions. Diversification Another motive for companies planning for merger/acquisition could be Diversification. Some not all of the divestments turn to fail. Many studies found that
Call us: (+91)9881820151
diversifications which are not related tend to provide poor results. While research studies show that unrelated diversifications tend to yield poor results. On the other side, diversifications which are related, and M&A transactions similar to the companies which have same line of business are getting merged have shown a sound record. Other studies have proved that when corporate focus is high the share value of the company increases. Diversification in its own does not have effects on the merged firms when their values get combined and when both are publicly traded and investors can diversify on their own. Consider the case of DM, an auto parts manufacturer in a cyclical business, acquiring L&A which is a firm which provides services in automobile industry with a non-cyclical and business which is highly growing. Combined firms cost of equity is calculated by the individual firms weighted average cost of equity. Weights of the company are the relative market values of equity (debt). The sum of the values of individual firms will be the combined firms value which indicates there is no value from diversification. Leveraged Transactions One of the motives for M&A is leveraged buyout (LBO). Leveraged buyouts transactions are those transactions which are financed by the high use of debts and usually involve taking a public company private. Financing in many of the deals is through junk bonds. These are those bonds which are rated BB or less, by the organization Standard and Poors had been more or less for decades. Original junk bonds which were featured in 1970 are those bonds which were rated low from the date when it issued. The reason behind the growth of junk bonds highly was various factors which includes the spirit of Drexel Burnham Lambert who was the market maker and provided liquidity. When the economy faced recession at the end of decade many of the deals which were highly leveraged failed. In the fifth wave of merger, Leveraged transactions again continued to be conducted. After a short period of time Leverage Buyouts became more popular during 1990s but differences were found in fourth and fifth wave of merger. The transactions tended to be smaller and were a fraction of the size of some of the mega- LBOs, such as the RJR Nabisco $24.6 billion LBO.
Call us: (+91)9881820151
Call us: (+91)9881820151
1.3 The Process of Mergers & Acquisitions The typical process of mergers and acquisitions is as follows: Chart 1.3: Process of M&A
PreAcquisition Review
Acquiring through Negotiation
Mergers & Acquisitions
Screening and Shortlisting Target
Valuing the Target
Step 1 Review process Pre Acquisition: This step includes identifying whether the company is capital sufficient and if so, the strategy of M&A should be implemented or not. Which includes understanding of the financial aspect of company, evaluating whether company is profitable enough to survive in the future and if it is necessary for the company to plan for a merger? It will also be beneficial to do the valuation of the company at this stage. Step 2 - Finding & Shortlist Targets: In this stage, screening of the potential targets takes place. Acquiring companies shortlist other companies based on their defined criteria. Some companies look for others with high market shares, some look for companies with a strong financial position. It is also possible that those companies which are producing products unavailable with any other competitor could be targeted. Step 3 Valuing the Target Company: In this phase of M & A process, The firm which is targeted for merger its financial performance and a detailed analysis carried out to understand whether the firm is over or under valued which helps to understand whether it is a good buy or not. A thorough analysis of the companys key financials is therefore prepared. Another
Call us: (+91)9881820151
important aspect which the acquiring company keeps its focus on is the process of due diligence. This process is undertaken once a target company is chosen. The aim of this step is to analyse whether the target company will create synergy or not. Companies also look at the financers who will help in this process. It is a test to check whether the factors driving the deal and making it look attractive are real or illusory, whether the inside of the house is as attractive as the exterior Due Diligence is a process which consists of legal, financial and strategic reviews of the sellers documents, contractual relationships, operating history and organizational structure. If the seller is to take the buyers stocks, due diligence will be a two way process. Conducted simultaneously by two teams the accounting team and a law firm, the process consists of preparation of comprehensive and customized checklists of issues to be investigated and in quantifying the risk wherever accosted. Step 4 Negotiation to Acquire: After finalizing the target company, final negotiations will be undertaken with it regarding the value of the merger or acquisition. After considering all the factors of both the parties, companies come on a mutual understanding. In this step, intense due diligence is undertaken as it is the most time consuming stage. This will help in understanding the target companys operating performance properly. The better is the understanding the better will be the expectations of prices. Bankers or financial institutions will usually be asked to finance the process. Step 5- Post Merger Integration: Once all the above stages have been duly completed and both the firms agree on all the terms of the acquisition, both the companies announce the agreement to merge, which will finalise the deal. When two companies merge, both have different ways of working operationally and strategically therefore in this phase, the management decides how the companies will integrate so that the company and the employees can work efficiently. It is considered to be one of the difficult steps because a rigorous plan and structure is required. Integration can be done in three ways: Full: Functional areas of the company get merged and the best practices used among any of the company will be used by the new company. Moderate: Specific methods get merged and the centralization of decisions takes place.
Call us: (+91)9881820151
Call us: (+91)9881820151
Minimal: Staff which is chosen by the company will only be merged to minimize the redundancies. Conclusion regarding the strategy and operations will continue to remain decentralized and independent.
If integration between companies is undertaken properly then synergy will be generated. What goes wrong with mergers and why they fail? When the acquired company is from a different business than the bidding company, it is observed that the chances of poor post-merger results are high. We can say that mergers with the intention of diversification tend to yield poor results. Some of them either produce average results or can even be regarded as failures. For an example we can see the results of Snapple which was acquired by Quaker Oats at an overpaid price with the intent of discovering the synergies. Another example is the recently unsuccessful merger between Kroll-OGara, in fact the automobile industry is filled with such examples, be it the BMW-Rover acquisition deal or the Daimler Benz acquisition of Fokker and then its corresponding merger with Chrysler. Usually high premiums are paid in an acquisition deal when the market has very high growth potential or at least the market has not reached the saturation stage, hence, it makes it very difficult to comprehend why Quaker Oats paid a very high premium for Snapple. This market was completely saturated with low growth potential. The failure of the Snapple deal explains one of the drawbacks of mergers or acquisitions which are conceived at a very high premium. Sometimes the overpriced transactions are not justified even if the market has very high growth potential. This happens when there are multiple firms bidding for one target firm and hence it becomes more of an auction and sometimes the winner of the auction tends to overpay in a fear of not losing to the competitors. This phenomenon is termed as the winners curse in the business world. There are some other reasons for which deals may die at a very early stage, such reasons are mentioned below: Adequate financial statements not prepared In any merger due diligence is very important. It has been observed that sometimes the seller is not co-operative in this process. A "deal breaker" is discovered by the buyer during the due diligence process.
Call us: (+91)9881820151
Call us: (+91)9881820151
"Seller's remorse, cold feet can also cause a merger to die at an early stage. Seller has not given enough consideration to the after-tax implications or compensation. There is a syndrome termed as Don't-Call-My-Baby-Ugly" which the seller might suffer from. This makes him defensive when the buyer finds flaws in his organization.
A change in the buyers management team when the due diligence process is on can cause a merger to die early. This is because the new management might bring in strategy shift.
Failure during negotiation stage in terms of the value of target firm. Sometimes the seller is not flexible on price and not willing to negotiate.
1.4 Types of Merger & Acquisition Mergers are generally classified on the basis of their characteristics. A merger can be horizontal, vertical or conglomerate. There are various effects on the performance of merged companies due to these different characteristics. Horizontal Mergers When two firms operating in similar or related product line decide to merge, it is termed as horizontal merger. Such mergers increase the market share of acquiring firm, brings down the competition level and also increases the degree of concentration in the market place (M&A, Milford Green, 1990). Sometimes such acquisitions take place only to eliminate a key competitor from the market. Horizontal mergers can cause misuse of power by monopolies and oligopolies, hence, there are strict rules and laws in place to make sure that there is fair competition in the industry and every company gets the opportunity to grow.
It is not always about increasing the market share and move towards the top when it comes to horizontal mergers. Horizontal mergers are often effected by market leaders to consolidate their position of dominance. Through such mergers, the acquiring firms also reaps the benefits of economies of scale and operating efficiency (Lipczynski, Wilson, 2004). A recent and globally known example of such a horizontal merger is that of European airlines. The Lufthansawww.projectsdeal.com Call us: (+91)9881820151
Call us: (+91)9881820151
Swiss International link up and the Air France- KLM merger are also very relevant examples of horizontal mergers (Lucey, Smart and Megginson, 2008). Horizontal mergers have been the most significant and common forms of mergers in India. Various studies like those of Beena, 1998 and Das, 2000 have revealed that after the year 1991 or we can say post liberalisation; a clear majority of mergers (60%) taking effect have been of the horizontal type, the same has been cited in Mehta, 2006. In the recent past there have been many big mergers of this type in India like the Birla L&T merger in the rapidly growing cement sector. The aviation sector has also witnessed quite a few such mergers like the Kingfisher airline Air Deccan merger and the Jet Airways Air Sahara merger. The Tata Cellular Birla AT&T communications merger was one big horizontal merger in the telecommunication space.
Horizontal mergers involve firms that compete. Some other examples are mergers of pharma businesses of Glaxo and Smith Kleene Beecham, acquisition of the acid cell battery business of Standard Battery by Exide. Horizontal mergers are regulated by governments to reduce the pessimistic effects on competition. The number of players will be decreased by them in an industry. They potentially generate domination control. Vertical Mergers When two firms operating in the same sector but at different stages of a product or service decide to merge, it is termed as a vertical merger. In most cases the main objective behind such mergers is to put an effective supply chain in place (Babu, 2005). When a manufacturer and a distributor of the same product line decide to merge, it is a case of vertical merger. This makes it tougher for competing firms to survive due to the benefits that participating firms reap out of the merger. If the distributor and the supplier decide to merge into one entity, then as a result the distributor will not be required to pay extra costs to ensure effective supply form the manufacturer (learnmergers.com). This is a perfect example of synergy and leads to profitable business and driving home the competitive advantage against competition.
Acquisition of auto dealers by renowned firms like Ford and Vauxhall are perfect examples of vertical mergers where supplier is trying to get the distribution advantage. Fords acquisition of Hertz is an example of a vertical merger (Geddes, 2006). Another significant vertical merger was
Call us: (+91)9881820151
the acquisition of Flag Telecom by an Indian telecom giant Reliance Comm. Ltd., which is part of one of the biggest Indian corporate house Reliance Group.
As mentioned earlier, vertical merger is conceived between companies in similar or related business but at different stages of production operation. In the power industry, players are classified as engaged in generation, transmission and distribution. With the passage of the new Electricity Act, players are keen on moving vertically up and down. Generating companies similar to Tata Power moved into distribution. There are technological economies in vertical integration. For instance integrated iron and steel manufacturers do not have to engage in reheating. Transactions happening within an entity eradicates the expenses and time incurred in tendering process, vendor evaluation process, contract formulation process, payment collection and advertising; inventory control is therefore superior and far more economical.
Conglomerate Mergers This kind of merger takes place between companies which are not related to each other by either value chain or peer competition. Conglomerates get formulated with the intention of having one central office which shall have adequate know-how, knowledge and expertise levels to allocate capital and operate the businesses more effectively and efficiently than in the case of businesses operating independently (Robert Bruner, 2004). Every merger has a primary motive and with conglomerate mergers it is risk mitigation or diversification of risk. In such cases the better performing group companies compensate for the for the poorly performing group companies. In layman terms, it is the balancing act (Brian Coyle, 2000). In Conglomerate mergers, the participating firms are not competitors and neither do they share any kind of buyer-seller relationship. In most cases conglomerate mergers have not yielded positive results and have been termed unsucessful. There are only a few companies like General Electronics (GE) who have been successful with conglomerate mergers, most others have failed with this practise (Patrick Gaughan, 2007).
In the case of conglomerate mergers, companies acquire businesses which are not related to each other through M&A. Primarily, there are 3 types of conglomerate which are mentioned below:
Call us: (+91)9881820151
Product extension: mergers broaden existing product lines. Acquisition of the mosquito repellent business of Good Knight by Godrej was an extension of its range of personal care products. Its existing distribution network could very well service the mosquito repellent also.
Geographic market extension: mergers extend the market for merged entities .e.g., Williamson Magor Groups acquisition of the dry cell business of Union Carbide in the mid-1990s. WM felt that the pan India distribution network of Eveready dry cells could be used for its tea business.
A conglomerate merger which is true - extends neither product line nor market.
Most of the mergers in the US in the 1960s and 1970s were of the true conglomerate type. Their popularity reduced in the period of the 1980s. In the mergers and acquisitions space, last 30 years has mainly seen breaking up of conglomerates which were formed in the 60s and 70s through conglomerate mergers.
Types of Acquisitions:
Friendly Acquisition In friendly acquisition the itself is interested in being acquired by other. In this kind of acquisition, the target puts up a proposal and itself provides access to confidential information which will help the acquiring company in scoping and due diligence processes.
Hostile Acquisitions In such type of acquisition the company which is getting acquired does not want to enter in the deal there for it does not provide any kind of information which is confidential to the acquiring company. Company usually do so to avoid the acquiring firm. Acquiring company usually has already accumulated an interest in the target (20% of the outstanding shares) and this preemptive investment indicates the strength of the resolve of the acquirer.
Call us: (+91)9881820151
Call us: (+91)9881820151
Accounting for Acquisitions There are different types of accounting process available for M&A but generally companies use below given two methods to account the acquisition: 1) First one is the common method used by all the companies i.e. Purchase method and 2) Another method which is not allowed now- Pooling-of-interest method In many of the countries the pooling of interest method is very popular but in some of the countries this process is not allowed now: CICA in Canada Financial Accounting Standards Board (FASB) in the U.S. and Internal Accounting Standards Board (IASB)
One firm assumes all assets and liabilities and operating results going forward of the target firm. Legal Framework for Mergers and Acquisitions The Companies Act has about 10 Sections in Part VI, Chapter V under the heading of Compromise, and Arrangements & Reconstructions dealing with corporate reorganization. In the case of sick companies, the Sick Industrial Companies Act (SICA) has over riding effects on many laws. For listed companies, SEBI has issued detailed guidelines on corporate restructurings which need to be complied with. The Income Tax Act has provisions on amalgamation and other restructurings. MRTPC and Competition Act also have strong bearings on M&A as they increase concentration. S391 deals with the power to make a compromise or arrangement with creditors or members Creditor - any person having a pecuniary claim against a company, whether actual or contingent Three types: preferential, secured and unsecured
Company proposes an order for a negotiation is among two company and the creditors and members of the same company, an application is made to court by a creditor or a member or for a company being wound up, by the liquidator. As per the orders of court meeting among the
Call us: (+91)9881820151
creditors take place. If the proposal is approved by a majority in number and 3/4th majority in value, it is submitted to the court and after the courts sanction it becomes binding on all creditors and members. Purchase consideration and allotment of new shares: Valuation of the business is a must before a scheme can be formulated. Consideration to shareholders of the transferor (in case of amalgamation) or to a company (if an undertaking is being acquired) can be worked out only after valuation. If the consideration is paid in cash then it may amount to a takeover and shareholders of the transferor are deemed to have sold their shares to the transferee company (with the resultant tax consequences). If an undertaking is sold then the transferor gets cash from the transferee and tax consequences lie on the transferor. In an amalgamation, shareholders of the transferor become shareholders of the transferee company consideration can either be shares, debentures, cash or any combination of these. If the scheme envisages issuance of shares to shareholders of the transferee company, new shares are allotted by the board of the transferee after all approvals/consents are obtained. Why Mergers are regulated? Mergers are regulated everywhere because some mergers mostly horizontal mergers - could have anti-competitive effects. Internationally, only about 5% of mergers are seen to be blocked or given conditional clearance. Mergers are regulated because: Mergers can eliminate or dilute competition Easier to deal with a merger than to post facto control market power or collusions Ordering a de-merger can be very costly Mergers change industry structure and are more long lasting than a collusion
European Commission blocked the Lonrho & Gencor merger as the two firms would have accounted for 70% of the world platinum supply. Steel makers from all over have called regulators to prevent the merger of BHP Billiton with rival Rio Tinto. In India, some acquisitions in divestment of PSUs perhaps need an investigation from a competition perspective. 1.5 Objective and Significance of the study
Call us: (+91)9881820151
The main idea behind doing research on this topic Impact of Mergers & Acquisitions on acquiring company performance, is to determine whether a Merger or Acquisition is good for the acquiring firm or not. An effort was made to identify the reasons of failure in M&A. There are various mergers and acquisitions which took place in UK markets. Post-acquisition, the returns of the company are either increased or decreased. There are various scenarios where a merger has become a failure and the acquiring company has suffered losses. The impact can be seen from the decreasing or increasing share price of the company. With this paper, efforts were made to come up with post-merger effects on the acquiring company and coming up with an idea of whether a Merger and Acquisition is beneficial or not for the companies. This study was undertaken with the help of primary and secondary research. Sample set of 30 executives from various companies were targeted to find out whether their company is planning for a merger/acquisition and if yes then what the criteria is and how they feel about the profitability. The executives targeted were in the age group of 25-50 years. On the other hand, secondary research was undertaken with the help of data set of share market movement. A study on the share market movement pre and post-acquisition was undertaken. An effort was also made to calculate the companies post-merger beta, as beta of a stock shows volatility compared to the market as a whole. 1.6 Hypothesis: With the help of this dissertation, an effort was made to figure out answers to many pressing questions. This study allowed us to come to a clear understanding of the acquiring firms performance post-merger through primary and secondary research. Though the focus was mainly on primary research, the historical data of stock market returns of a company and its study gave a clear understanding of the risk associated with Mergers and Acquisitions. Therefore we have emphasized on the following aims and have drawn a conclusion based on them. The aims of the dissertation are as follows: 1. To highlight the difference between a merger and an acquisition and also point out the differences between other similar terms. 2. To analyse the motives behind acquiring a target company. 3. To investigate the stock performance and financial performance of companies pre and postwww.projectsdeal.com Call us: (+91)9881820151
Call us: (+91)9881820151
merger. 4. To examine whether the merger or acquisition was a success or failure and the reasons behind the same. Summary: This chapter focused on understanding the meaning and difference between a Merger and an Acquisition. Emphasis was mainly laid on understanding and identifying the differences between various similar terms like Divestment, Spin-off and Takeover. An effort was also made to understand the motives behind mergers/acquisitions to understand why companies plan to acquire other companies because mergers involve lot of planning, a lot of finances and post integration difficulties. The process of undertaking a merger was also presented here to understand how a merger usually takes place and what all a company needs to do for a merger.
Call us: (+91)9881820151
Call us: (+91)9881820151
Chapter 2- Literature Review
2.1 Introduction Merger and Acquisition activities are on the rise. In order to improve the efficiency and profitability of the company, management these days choose the option of merging or acquiring other firms as more favourable. With these activities a company gets an established brand though the merged or acquired firm has some limitations or drawbacks for instance the company must be in losses which have to be borne by the acquiring firm. Both the acquired and the acquiring firm get affected due to M&A. This research was undertaken with the objective to understand the prospect of acquiring a firm. Various similar studies have been undertaken by Ruud. A. I. van Frederikslust, Vincent van der Wal and Huib Westdijk (1989) in their paper tried to understand the impact of Mergers and Acquisitions on shareholders, Anup Agrawal and Jeffrey F. Jaffe (1999) in their paper undertook the study of analysing post-merger performance of companies, John Hagedoorn and Geert Duysters (2000) did a thorough analysis of post-merger effects on companies, Magnus Bild, Paul Guest, Andy Cosh and Mikael Runsten (2002) on the similar line investigated the impact of takeovers on companies, Christian Tuch and Noel OSullivan (2007) presented a review of empirical research on the impact of acquisitions on firm performance, E Akben-Selcuk, A. Altiok-Yilmaz (2011) investigated the impact of Merger & Acquisition (M&A) deals on the performance of acquiring Turkish companies. Besides these, many other researchers have also chosen this topic and worked on it but getting an overview of all of them was difficult.
Call us: (+91)9881820151
Call us: (+91)9881820151
2.2 Studies by Researchers on Mergers and Acquisitions Shareholder Wealth Effects of Mergers and Acquisitions
Ruud. A. I. van Frederikslust, Vincent van der Wal and Huib Westdijk (1989) in their paper analyzed the theories of creating the wealth and theory of redistribution for mergers and acquisitions. The sample of Dutch companies in the time frame from 1954-97 was taken. When companies announce the Mergers or acquisitions market became bullish and share price of the companies increased it was found in 52%, while 82 % of the takeover targets show a positive share price performance. Similar to other studies done by the researchers on American markets in this paper also it was found that in the Netherlands markets there is negative pressure of markup pricing on the bidders return. Stock market analysis of the reactions of Mergers and
Acquisitions was undertaken of the companies which are listed on Amsterdam Stock Exchange. Results of the analysis shows that positive returns was seen in the 60% of the partners share price who merged the average of same was 4.8%. The mode of paying the acquisition value on this also the performance of the share price depends. Negative relation was found when the company is paying trough shares and positive relation was seen when the company did payment in cash The Post-merger Performance Puzzle
Anup Agrawal and Jeffrey F. Jaffe (1999) examined that post- merger what are the effects on the abnormal returns of company. They emphasised on two problem areas in this paper. First one is to identify the scale of the companies getting abnormal returns and analysing the level to which the magnitude of the abnormal returns has been diverge to the point zero. Studies undertaken by Franks, Harris and Titman (FHT) (1991) were given more focus in this study, the reason being is the highly because of their refined method and attention to detail in their study. With the help of this analysis no support was found in the inference that due to slow adjustment to merger news the companies are under performing. Do Takeovers Create Value? A Residual Income Approach on U.K. Data
Magnus Bild, Paul Guest, Andy Cosh and Mikael Runsten (2002) in their paper a new method of analysing the financial presentation of the company takeover was developed and then tested. With the help of traditional accounting performance techniques the first analysis was undertaken
Call us: (+91)9881820151
with the help of ROE measures to analyse the impact of M&A. As suggested by Barber and Lyon in 1996 in this paper also returns of profits were calculated which was related to those firms which does not have merging control. The firms whose profits were calculated were chosen on industry and size basis. The valuation method which was used in this study is also called Edwards-Bell-Ohlson valuation technique and it is an income approach which gets discounted. The above methodology used in this paper was then examined on the UK Companys data which were public firms a set of vast data of such acquisitions by UK companies during Jan 1985 to Dec. 1996. The response of the share market whenever a takeover bid is announced shows various stock issues such as the market is overvalued or there is not much impact of acquisition on the markets. One of the limitations of accounting study is that it does not consider the price of acquisition and the money time value. The fundamental value of the company is created when the acquiring company comes above the expectations of the stock markets and performs better than the expectations and go beyond the value creation attain by non-merging control firms. Finally it was concluded that the when the companies are valued fundamentally the value of the company come low after acquisition compared to when it was valued before acquisition. Relative Standing And The Performance Of Recently Acquired European Firms
Philippe Very, Michael Lubatkin, Roland Calori and John Veiga (1997) in their paper focused on the getting and understanding on the idea of relative standing which helped to analyze the European firms performance which got acquired recently and the performance was analyzed for such companies post-merger. A survey was undertaken and the respondents included the managers from the top companies of Britain and France which were acquired by British, French, and U.S. firms. This survey was undertaken to understand the respondents view on how the buying firms are compatible with each other on cultural grounds, what they feel on the loss of their independence due to merger and their view on post-merger performance. This helped to find that theory which was used was sufficient enough to explain the acquiring firms performance. The organizational theory used went beyond the cultural area and reflected that there is possibility of biasness in the culture of countries.
Call us: (+91)9881820151
Call us: (+91)9881820151
The Effect of Mergers And Acquisitions On The Technological Performance Of Companies In A High-Tech Environment
John Hagedoorn and Geert Duysters (2000) in their paper focused to understand and solve the min distress which was to analyze the effect of M&A on the performance of companies technologically. Analysis level in this study is up to the companies that are engaged in M&As and not individual M&As as such. The purpose behind taking this approach and doing analysis was the performance of the company at technology level is usually calculated at the company level not at the individual M&A level. Growth of patent industry of US patents for the time period from the year 1989- 1994 was used for the analysis. This became the variable of technological performance of the companies. The theory was tested with the help of least square regression model. It was interpreted that the companies which got merged or acquired and have the average performing Research and development department helps in the technological improvement of the companys performance. A relationship was also made among the size of the company and the technological performance of the company which have undertaken M&A. Also there was a negative effect found between the control variable for Research and Development and the technological performance of the company. It signifies that the output of Patent decreases when Research and Development expenditure increases. Other results suggested that when M&A takes place internationally it helps in the improvement of technological performance of the companies. The impact of an acquisition on a companys performance: A review of the evidence
Christian Tuch and Noel OSullivan (2007) conducted a study which reviewed the impact of acquisition on a companys performance. The evidence coming out of this study indicated that, in the short run acquisitions do not seem to have any considerable impact on the wealth of shareholders. When long run analysis is conducted, the results are found to be negative in terms of the returns on shareholders wealth, however, the evidence coming out by using accounting performance methods is mixed and does bend heavily towards either positive or negative returns, in some cases it is positive and in some cases it is found to be negative . The results were analyzed through concrete evidences coming out of mergers and acquisitions which have happened. Quite a few inferences can be drawn out of the study conducted in this paper. In terms
Call us: (+91)9881820151
of the market based performance, the evidences clearly suggest that the announcement effect of takeovers is at best insignificant. Performance measured by long-run event studies is overwhelmingly negative, while the evidence using accounting performance measures is mixed. However there can be no inferences drawn on the theory that takeover performance significantly improves over time. There is no evidence related to that. There were some evidences noticed regarding the more recent takeovers, stating that these recent takeovers have been the most detrimental to the wealth of the shareholder. Christian Tuch and Noel OSullivan reviewed a lot of research conducted on this topic, but, they were still left with many important research questions unanswered. The Impact of Mergers and Acquisitions on Acquirer Performance: Evidence from Turkey E Akben-Selcuk and A. Altiok-Yilmaz (2011) studied the impact of mergers and acquisitions from a Turkish perspective. They analyzed the impact of such deals when the acquiring firm was based out of Turkey. In the 4 year period from 2003-2007, there were a total 60 plus companies involved in mergers and acquisitions. 62 companies formed the sample set of this study. The hypothesis was that acquiring companies are negatively affected by mergers and acquisitions. Analysis of both stock market and weekly accounting data supported the hypothesis that acquiring firms are negatively affected by the M&A activities. The company news section on the Istanbul Stock Exchanges (ISE) online portal was thoroughly screened to determine the sample set of merger and acquisition transactions to be used while conducting this study. The four year period from 2003 to 2007 was selected by them so that the focus of the study was on the more recent acquisitions and also to have some post-M&A performance data available for the participating firms. This study concluded that returns for stocks of Turkish companies involved in acquisitions exceeded the average industry returns during that period. The same inference, however, could not be confirmed when the event duration analyzed was shorter. Limitations of the study are that the results have a generalization problem, since E Akben-Selcuk and A. AltiokYilmaz examined only public companies, the ones which were listed on the Istanbul Stock Exchange (ISE). Second major limitation of this study was that the period used for examining the results was very short standing at 2 years only.
Call us: (+91)9881820151
Call us: (+91)9881820151
Inventors Response to Firm Acquisitions
In a research paper prepared by Katrin Hussinger (2007) he provided empirical evidence on the mobility and productivity of inventors involved in European M&As. When companies get merged or acquired the inventors of the companies behave in different manner. Analysis proved that post- merger 33% of the inventors leave the company. Those inventors who stick to the company post-merger their productivity do not get deteriorated due to merger. A data set on which the information is available regarding the firms information which have undergone Merger and Acquisition in Europe and the labour force of such companies this study was undertaken with the help of this newly created data. With the help of this study two conclusions can be drawn a significant bonding was found between the inventors and the target company also it was found that inventors want to stay with the new formed company. When an inventor leaves the company after acquisition he has lot of knowledge about the companys working and operations so it is not good for the newly formed company that such person goes to other firm and share the information about the company. So the acquiring firms should take care of this and should have a more realistic picture of the inventors involved in the target company, their technological skills, and knowledge. Motives for Acquisitions In The UK
Michael McCann, (2004) in the paper analyses and examined the reason behind companies planning for merger in the UK. The methodology adopted in this paper made a correlation between the gain of target and the gain company achieved totally. This was done with the motive to differentiate the efficiency from those driven by agency motives. In order to make discrimination in the managerial hubris from agency problems analysis of the relation between the target and bidder gain was analysed, Results revealed that main motive of the companies going for acquisition is total gain. In the sample selected evidence of the managerial hubris was found. In acquisitions where total gains are negative, agency problems are the primary motive. The technique adopted by them for the analysis is OLS regression method carried between target and total gain and target and bidder gain. The methodology adopted in this paper was recommended Berkovitch and Narayanan (1993) this was used to examine 3 motives of acquisitions in the UK. The major difference between this method and the standard event method
Call us: (+91)9881820151
Call us: (+91)9881820151
is that it analyzes the relationship among target and total gain and bidder and target gain which helps to differentiate among efficiency, agency and hubris motives. An Empirical Study of Firms Merger Motivations and Synergy from Taiwanese Banking Industry The focus of Ting-Kun Liu (2010) research paper was laid down on the financial industry. Logistic regression model was used to on the data set to discover the impact of mergers. After this the factor analysis was also used to differentiate the performance between holding company banks and ordinary banks after mergers. To make sure that the value of profitability comes under 0-1cumulative standard normal distribution function was used to perform value conversion. The subsidiary banks performance scores was also calculated for 12 financial holding co with the help of factor analysis. The performance of the cos were compared pre and post establishment of the holding co. The results of Logistic regression model analysed that, factors which determine the motives of banks for merger includes: ratio, debt ratio, non-performing loans coverage ratio, liquidity reserves ratio, earnings per share, lending growth rate, market conditions, and bank scale, all of which were positively correlated with merger motives; pre-tax net profit rate, financial services cost rate, revenue growth rate, operating profits per person, network effects, and government shareholding ratio were negatively correlated with merger probabilities. The Long-Term Performance of UK Mergers & Acquisitions: Separation by Bidder Motivation
Prof. Mahendra Raj and Michael Forsyth (2000) intended to understand 3 prime motivations behind a merger individually and evaluate the performance of a company over the course of a long-horizon. From a sample of all the UK takeovers between the eight year period of 1990 to 1998, Prof. Mahendra Raj and Michael Forsyth identified the list of bidders and targets that accurately reflected a particular merger motive. We can say that the mergers were classified as per the three main motives which according to them were synergy, hubris and hostile takeovers. The primary contribution of this paper was that it did not evaluate a general sample, instead, it assembled samples of bidder companies which had similar characteristics as the underlying theories of each motive studied. In terms of a long horizon, this perhaps is the first
Call us: (+91)9881820151
study which measures bidder returns while concentrating on segregating the sample on the basis of the main motive behind bidding. Abnormal returns were used to measure the long term performance of the company. Top Managements perspective was utilized in classifying the acquiring companys main motive behind the bid. A sample of 48 bidders was also examined separately, in these 48 cases the motive behind the bidding was friendly and could not be classified amongst the 3 main motives of this study. The results of this paper evidently specify that the market recognizes and reacts to the underlying motive of the merger and it also considers the condition and specifics of the acquiring company. The findings of this paper also specify that the performance during the post-merger period is not necessarily negative as it has been generally found in studies conducted prior to this one. As per this study the post-merger performance depends on the main driving force or the main motive behind the takeover.
Conclusions given by the authors in this paper further add new evidence to the post-merger dilemma by postulating that the underlying motive behind the takeover is directly related to the performance of the bidding firm over the long-horizon.
Stock Market Reaction to Acquisition Announcements using an Event Study Approach
Isfandiyar Shaheen (2006) performed a very interesting study by empirically examining the stock market reactions to acquisition related announcements. This study uses an event study methodology. The primary objective of this study was to establish relationships between the following four factors: Abnormal returns, Methods of financing, Deal premiums, and, Nature of the bid.
The difference between actual and predicted returns surrounding a corporate event is defined as abnormal returns. They verify that announcements of companies merging are those events
Call us: (+91)9881820151
because of which investors frequently recalculate or revise their estimates regarding the future profitability of participating firms in the merger. The methodology used in this study displays the occurance of a spike in the volume of shares traded after the announcement of an acquisition is made public. As mentioned earlier, the event study approach was also adopted in this paper. The research found, as hypothesized, that abnormal returns of target firms are significantly different from those of acquiring firms. From a 40 cases strong sample of acquisition announcements, positive abnormal returns were experienced by the target forms irrespective of deal specifications. As far as acquiring firms are considered, they experienced negative, significant abnormal returns in stock financed transactions on the day of the event. By studying secondary information (available publicaly), this research has analysed reaction of the stock market to acquisition announcements and has identified the deal premium as the most important determinant of abnormal returns. Assessing the Effects of Mergers and Acquisitions on Firm Performance, Plant Productivity, and Workers Donald S. Siegel in the year 2008 used the theory of human capital to model the Merger and Acquisition events as those transactions which have cross- level, real effects on workers, plants and firms. The analysis was carried for the Swedish manufacturing firms and employees and it was based on the longitudinal, linked data of employee and employer. It was found that M&A helps to increase the productivity of plants but also effects the establishments and firms by downsizing them. There was not decline seen in the performance of the firms due to change in the ownership. The theory of Human Capital was used to generate a set of hypothesis to identify the cross level effects of M&A on the plants, workers and firms. Siegel in this paper to test the hypotheses measured the productivity, profit, market share output, employment and the earning equations at the level of plant, firm and individual. With the analysis it was found that M&A helped to improve the productivity of plant without changing the performance of firm but it also affected the firms by downsizing them. It was also found that the quality of human capital was involved of the plants which were involved in the process of Merger and acquisition Summary In this chapter an analysis of the studies undertaken by other researchers on similar topics and similar lines has been made in order to understand what methodology other researchers have
Call us: (+91)9881820151
Call us: (+91)9881820151
adopted and which methodology will be suitable for this study. Various studies were found in which either the stock market approach or the accounting approach was adopted while some researchers adopted the survey method to understand post-merger effects on companies.
Call us: (+91)9881820151
Call us: (+91)9881820151
Chapter 3 Methodology
3.1 Methodology Literature Various researchers, in order to understand and analyse this impact, have undertaken different methodologies and analytical techniques. The studies undertaken by other researchers usually consist of two methodologies: the stock market-based approach and the accounting-based approach. In stock market approach a study of the share price of the company and the effects of the news or mergers or acquisition is analysed. Whenever stock market approach is used for the study it is believed that the market is efficient enough and the abnormal returns of both the achieved pre and post-merger represent the economic impact of the M&A on the companies. The studies on the same topic by other researchers on the US and the UK companies which got merged or acquired shows that whenever firms merge they receive large and significant gains. This shows that merger or acquisition is beneficial for both the firms and its shareholders. A. I. van Frederikslust, Vincent van der Wal and Huib Westdijk (1989) examined share price reactions of merger partners of which both are listed on the Amsterdam Stock Exchange. The Market Model Method is used to measure the abnormal return (Brown & Warner, 1980). The abnormal return of the combined merger partners is computed as the weighted average of the abnormal returns of the target and the bidder. Anup Agrawal and Jeffrey F. Jaffe (1999) used the regression technique to calculate abnormal returns for the stock post-merger. Magnus Bild, Paul Guest, Andy Cosh and Mikael Runsten (2002) examined the impact of a merger employing the traditional accounting performance technique using a return on equity profit measure. The effect of the takeover is measured as the intercept of a cross sectional regression of post-takeover relative profit returns on the corresponding pre-takeover returns. A valuation method is also used in this study which is a discounted residual income approach sometimes referred to as the Edwards-Bell-Ohlson valuation technique. A major problem with the market based approach is that changes in market valuations around the time of the M&A could reflect not only the benefits of an efficiently operating market for corporate control but also other factors such as undervaluation due to investors overlooking the
Call us: (+91)9881820151
stock or an overvaluation by those who acquire the firm. The reliability of such studies is also questioned on the grounds of taking a short time period to study. The previous trends in the Accounting-based studies were not that stable with respect to the difference in the performance of the company when companies undergo Merger or Acquisition. Some studies undertaken with this approach have shown profits, some report losses and others show mixed or insignificant results. The problems usually seen with the accounting-based approach are that companies can use creative accounting techniques which may imply that their published accounts may not be a true and fair reflection of the companies' financial position. Some companies even misrepresent their financial statements and register huge profits to gain shareholder confidence. Although both approaches have one drawback or another, the stock market approach still has some consistent results in comparison to the accounting based approach. Therefore, the stock market approach will be used in the secondary study of this thesis. 3.2 Method Adopted This study is segregated into Primary and Secondary research. The data obtained from this study will be used to analyse the impact of mergers and acquisitions on an acquiring firm. A considerable amount of time and energy will be utilized in deciphering information and facts from articles, periodicals, journals and magazines. This is required because once it was decided to focus on the dynamics of the market in order to explore the changing investment dynamics in the economic environment; it becomes easier to focus on the collation and collection of specific data in the area. The main advantage of primary research is that it can be easily relied upon as it is based on the exact information and belief on a particular topic by specific people. However it also has some disadvantages such as the fact that it takes a lot of time to collect the data. Some of the common tools of conducting primary data are surveys, interviews and observation techniques. This insightful study and the survey also put emphasis on the use of a sample survey based questionnaire which was put before a set of 100 respondents. We adopted the following steps to undertake the study:
Call us: (+91)9881820151
Call us: (+91)9881820151
1. Analytical evaluation of company executives with respect to Mergers and Acquisitions. 2. To strike an effective correlation between the share market performance of the company postmerger and acquisition. 3. The use of primary sampling tools like questionnaires and stock market analysis effectively portray the impact which the merger and acquisition is having on companies post-merger and acquisition. Like many other studies, this analysis bases its Secondary research on stock market returns. Secondary data is the form of data which is already present in the market. Some of the common sources of collecting secondary data are journals, magazines, newspapers, company websites, annual reports, Govt. websites and search engines. Stock returns show the exact performance of companies and predicts the behaviour of shareholders towards the stock. We will analyse the stock returns by calculating beta. Beta () of a stock or portfolio is a number describing the relation of its returns with those of the financial market as a whole. As shown in Figure 1, there are various Mergers and Acquisitions which took place in the last 10 years. The company chosen for this study is Tata Corus acquisition Tata Group is one of the largest corporate houses in India with more than 100 group companies, they enjoy enormous brand equity in India and their perception is that of a trustworthy brand. Tata Steel is one of the group companies of Tata group, Tata Steel is the second largest steel producer in India, from the global perspective Tata Steel is ranked 56th in terms of steel production with an impressive annual crude steel capacity of 3.8 million tonnes. Tata Steel is based out of the eastern part of India in a city called Jamshedpur which is a part of the state of Jharkhand. Jamshedpur is also known as Tata Nagar (Nagar means town, in Hindi) because of the history Tata Group has with this city. Post Tata Steels merger with UK based steel company Corus, Tata Steel has become India's 2nd largest and 2nd most profitable organization operating in the private sector, they have achieved this position by achieving consolidated revenues of Rs 1, 32,110 Cr and net profits of more than Rs 12,350 Cr. These figures are from the financial year ending on 31st Mar 2008. Tata Steel is not well known in India only, they have been recognized for their performance globally also, and in fact they were
Call us: (+91)9881820151
declared the best steel producers by World Steel Dynamics in 2005. Tata Steel is a listed company on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The employee strength of Tata Steel is around 82,700 people. Corus came into existence in the month of October, 1999 through the merger of two firms namely Koninklijke Hoogovens N.V. and British Steel Plc. The revenue of the group during the year ending on 31st December 2005 was more than 10 billion. Profits were impressive touching the figure of 580 million before tax and 451 million after tax deductions. On 20th of October in the year 2006, the board of directors of this Anglo-Dutch steelmaker Corus agreed on a $7.6 billion takeover bid price offered from Indias 2nd largest steel maker Tata Steel. An analysis of this company and stock market performance pre and post- merger and acquisition will be undertaken. This will help to determine whether Mergers and Acquisitions are profitable for companies or not. Summary: In this chapter, an idea is given regarding how exactly this study has been undertaken. It has also described the method and approach to carry out such a study. In primary research, 30 Executives of companies were sent questionnaires and in secondary research, a study of two companies merged in UK listed on stock exchanges will be chosen.
Call us: (+91)9881820151
Call us: (+91)9881820151
Chapter 4 Results
To understand post- merger effects on the acquiring firms performance two cases, Tata Corus acquisition and HCL Axon Acquisition were analysed. The results of the analysis are given below and the discussion analysis on the same has been given in the next chapter. Table 4.1: Results of the Analysis and Calculations for Tata Steel Year Beta April 2003- April 2007 (Pre-Merger) 1.45 April 2007- April 2010 (Post-Merger) 1.75
Table 4.2: Results of the Analysis and Calculations for HCL technologies Year April 2005- December 2008 (Pre-Merger) December 2008 - December2010 (Post-Merger) Beta 0.66 1.02
According to Panayides and Gong (2002) Beta is the slope coefficient which is obtained by the regression analysis of returns on index compared to the returns of stock it is also a measure of the volatility of stock. The above table shows that after Tata steels merger with the UK based Corus, the company benefitted and its beta increased from 1.45 to 1.75. Table 2 and 3 in the appendices chapter shows the results of calculation of Tata Steel. Beta is calculated by regressing the stock return and index returns. Returns were calculated 3 years pre and post- merger. Formula used to calculate the results are Share price+ dividend/Closing price of the previous month The same way returns of Nifty index was calculated .On the other hand, the beta of the company HCL technologies which acquired UK based Axon also increased. Table 4 and 5 in Appendix shows the results of beta calculation of HCL- Axon. Pre-merger beta of the company was 0.66 which increased to 1.02 post merger. Both the companies are listed in National Stock Exchange from their prices are obtained. This can help us to conclude that the acquisition was beneficial for both companies. Results revealed that the companies beta improved because of merger or
Call us: (+91)9881820151
acquisition which also signifies that on their investments shareholders are getting better returns compared to pre- merger. Summary: In this chapter, the results of the performance of two UK companies which got acquired by Indian companies were shown. The financial performance of the companys improved which shows that mergers or acquisitions are beneficial for an acquiring company. It helps in improvement of the company performance.
Call us: (+91)9881820151
Call us: (+91)9881820151
Chapter 5 Analysis and Discussion Analysis

5.1 Secondary Research To analyse the impact of Mergers and Acquisitions of our main proposition on the structural break up in the characteristics and behaviour of companies merged, two companies were selecte for the study. The companies selected undergone mergers of the listed companies of UK and are regarded as important deals in the history. Company which are chosen are Tata and Corsu acquisition and HCL Axon acquisition. A comparison of Tata Steels share prices with the NIFTY index returns also HCL share prices with Nifty returns for the past 10 years was carried out and analysed. We ended up discovering the pre-merger and post-merger impact on an acquiring firms performance. 5.1.1 Tata Corus Acquisition
Tata Steel is one of India's premier large integrated private sector steel producers which enjoys an imposing presence globally. The company also enjoys the distinction of emerging as a star performer in the domestic steel segment owing to the use of superior technology and knowhow supplemented with a knack for steadily expanding the business operations congenial to the business and economic milieu. In-fact, apart from being the lowest cost steel producer in India it boasts of ranking sixth in the global arena after its acquisition of Corus making the combined Tata-Corus entity spread its business tentacles over Europe (37%), UK (22%), Asia (24%), North America (8%) and the rest of the world (9%). Tata Steels overseas ventures and investments in global companies have helped the Company create a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. The Groups South East Asian operations comprise Tata Steel Thailand, in which it has 67.1% equity and Nat Steel Holdings, which is one of the largest steel producers in the Asia Pacific with presence across seven countries. Apart from this, Tata Steel's European group has an existing annual production capacity of around 24 million tonnes per annum which declined to 15% compared to 28 million tonnes
Call us: (+91)9881820151
Call us: (+91)9881820151
recorded during FY2008-09 as the recessionary scenario affected most economies though less so in India. The Group, however, managed to record a decent turnover of Rs. 102.393 crores, which was anyways 30.5% lower than the better FY 2008 2009 numbers, i.e., Rs.147, 329 Crores. FY 2008-09, however, didnt start on a good note for the company as it was saddled with extremely fluctuating fortunes. One of the principal reasons attributed to this was the advent of the global recession which was slated to eat into the profit margins of the global steel industry as strong demand and rising prices in the first half were followed by the drastic falls in order books. The depressed market conditions evident towards the culmination of FY 2008-09 continued to gather momentum in FY2009-10 and, whilst some modest recovery was evident by the third quarter, sales volume and prices remained well below those experienced in the first half of FY 2008-09. The other dampener to the global steel industry came in the form of falling effective steelmaking capacity utilization which experienced a sharp downslide in the second half of FY 2008-09 as the steel makers were forced to cut production on account of falling demand; this figure, however, touched 61% in December FY 2008-09 and subsequently improved to 76% by the beginning of December FY 2009-10. Chart 5.1: Shareholding Pattern of Tata Steel
Shareholding pattern
24%
31%
Promoter FII DII Others
25%
20%
Source: Company Website
Call us: (+91)9881820151
Call us: (+91)9881820151
Product of the Company: Tata Steel essentially manufactures and sells a broad range of steel products that include: Welded steel tubes Cold rolled strips Bearings Wires and Tubes Plants and Equipments Agricultural implements. Table 5.1: Sales and Production figures (in million tonnes) FY10 FY09 % Change 7.23 6.25 16 Hot metal 6.56 5.65 16 Crude steel 6.44 5.37 20 Saleable steel 6.17 5.23 18 Sales Source: Company Annual Report
Corus and Steel Production in the U.K.:
The main reason behind the merger that led to Corus being formed was Privatizaton. The Government of UK decided on going ahead with the privatization of steelworks companies. Corus mainly comprises of 4 divisions which include: Strip Products, Long Products, Aluminium and Distribution and Building Systems. The Headquarter of Corus is based out of London; Corus operates as a multinational company, it satisfies the demand generated by many steel customers across the globe. Its core business comprises of manufacturing, development and allocation of steel and aluminium products and services. The company has a wide variety of products and services which comprise the manufacturing of electrical steel, narrow strip, plates, packaging steel, plated steel strip, semi-finished steel, tube products, wire rod and rail products and services. However, the company is also engaged in providing a variety of services including design, technology and consultancy services.
Call us: (+91)9881820151
Call us: (+91)9881820151
Like Tata Steel is the 2nd largest steel producer in India, Corus is Europes 2nd largest steel producer with revenues of more than 9 billion (US$18 billion) during the year 2005. Its crude steel production was more than 18 million tonnes, primarily in European countries UK and the Netherlands. Corus has more than 42500 employees based out of more than 40 countries and sales offices and service centres worldwide. UK has more than 55% of Corus employee base with more than 23,000 employees; in Germany there are about 2,600; Netherlands is second in terms of the number of employees with more than 11,000 employees and about 5000 of its employees are based out of other countries. Combining international expertise in production with world class local customer service, the Corus brand has been a symbol of great quality and strength. The products and services of Corus have been acquired by companies operating out of various sectors such as commercial and military aerospace ventures, automotive, construction, engineering, defence and security, as well as the rail and shipbuilding industry. To successfully operate and sustain growth of its global steelmaking, processing and distribution operations the company makes per year investments of more than 6 million in the procurement of various goods and services, examples of which are iron ore and coal, alloys, refractory, rolls and paint. Corus, during the nine year period of 1996-2005 saw some inconsistencies in its performance in terms of revenues, profits and growth rate. The company also had a huge amount of short term and long term debts. The total debt burden on Corus in the year 2006, before the acquisition made by Tata Steel was close to 2433 million GBP. But inspite of all the above mentioned factors, Corus has continued to grow through a number of acquisitions during 2000-2006. Strategic acquisitions have resulted in fast based growth of Corus as it did not have to spend time in building internal skill sets and resources.
Tata Corus Acquisition: Tata Steel, Indian steel giant acquired Corus in the year 2006. It is considered as one of the biggest acquisitions. This deal was very interesting and surprising because Tata Steel, in a developing country like India was a small company compared to Corus PLC from UK. Corus on the other hand, before acquisition was four times bigger than Tata Steel. But one thing which is to be noted here is that in the year 2006, the operating profit for the company Tata Steel was $840 million (sale of 5.3 million tonnes), whereas in the case of Corus it was $860 million (sale
Call us: (+91)9881820151
of 18.6 million tons). It is also important to understand the reasons behind why a company like Corus which is bigger in terms of revenue and size sold itself to a small company. Though Corus was earning well, it had accumulated a huge debt burden, made operational losses and also had its share price drastically come down. So what convinced Tata to acquire such a company and how did they manage the finances for this acquisition?
Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion making the Indian company the worlds sixth largest steel producer. This acquisition process started long back in 2005. However, Corus itself was involved in a considerable number of Merger & Acquisition (M&A) deals and joint ventures (JVs) beginning in the year 2000. In a period of seven years Corus was involved in 14 deals. In 2006, Tata first offered 455 pence per share of Corus but by the end of the bidding process in 2007, Tata offered 608 pence per share, which is 33.6% higher than the first offer. For this deal, Tata financed only $4 billion, although the total price of this deal was $12billion.
The Acquisition Process: The acquisition process started on September 20, 2006 and was completed on July 2, 2007. During the process, both companies faced many ups and downs. The official declaration of the completed transaction between the two companies was announced to be effective by the Court of Justice in England and Wales and was consistent with the Scheme of Arrangement of the Tata Steel Scheme on April 2, 2007. The total value of this acquisition amounted to 6.2 billion (US$12 billion). Tata Steel, the winner of the auction for Corus declared a bid of 608 pence per share which surpassed the final bid from Brazilian Steel maker Companhia Siderurgica Nacional (CSN) of 603 pence per share. According to the Scheme regulations, Tata Steel was required to deliver consideration not later than 2 weeks following the official date of the completion of the transaction. The deal between Tata & Corus was officially announced on April 2nd, 2007 at a price of 608 pence per ordinary share in cash. This deal was 100% acquisition and the new entity was to be run by one of Tata steels subsidiaries. As stated by Tata, the initial motive behind the completion of the deal was not Corus revenue size, but rather its market value. Even though Corus is larger in size compared to Tata, the company was valued less than Tata (at
Call us: (+91)9881820151
approximately $6.2 billion) at the time when the deal negotiations started. But from Corus point of view, as the management has stated, the basic reason for supporting this deal was the expected synergies between the two entities. Tata Steel managed financing for this deal by raising funds from various sources, viz., long term loans, internal generation from the Tata Group, Rights Issue, Debenture, Euro Currency Bonds, etc.
Deal Structure:

$3.53.8bn infusion from Tata Steel ($2bn as its equity contribution, $1.51.8bn through a bridge loan) $5.6bn through a LBO ($3.05bn through senior term loan, $2.6bn through high yield loan)
Synergies between the two companies There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in a fast developing region of the world and Corus, which was a high value product manufacturer in a region of the world demanding value products. Some of the prominent synergies that could arise from the deal were as follows:
Tata was one of the lowest cost steel producers in the world and had self-sufficiency in raw material. Corus was fighting to keep its production costs under control and was on the lookout for sources of iron ore.
Tata had a strong retail and distribution network in India and S.E Asia. This would give the European manufacturer an in-road into the emerging Asian market. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Therefore it would help both companies to make a great combination which would be of the standard of quality developed and low cost high growth markets
There would be technology transfer and cross-fertilization of R&D capabilities between the two companies which specialized in different areas of the value chain
Call us: (+91)9881820151
Call us: (+91)9881820151
There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Corus's Continuous Improvement Program The Corus Way emphasised their commitment to core values, a code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for their people.
Findings: In order to analyse the pre and post-merger effects we calculate the Beta of the company before and after acquisition. Tata Steel is listed in S&P CNX Nifty index. It acquired Corus in the year 2007 so the data is taken from April 2003 till the Merger date and the data from April 2007 to the next 3 years. And in a similar way, the historical data for Nifty is taken from 2003 to 2010. This will give a better understanding of the performance of a company pre and post- merger and will also help us to analyse the profitability of a merger for an acquiring company. The formula for calculating stock Beta is = Cov (r, rp) Var(rp)
Where ra - measures the rate of return of the asset rp measures the rate of return of the portfolio cov(ra,rp) is the covariance between the rates of return Here beta is calculated using the regression analysis. The companies returns were calculated with the following formula= price +dividend/closing price of previous month.
Results of the Analysis and Calculations Year Beta April 2003- April 2007 (Pre-Merger) 1.45 April 2007- April 2010 (Post-Merger) 1.75
Call us: (+91)9881820151
Call us: (+91)9881820151
The snapshot of the calculation is given below in the Annexure. It can be clearly interpreted from the above results that Beta of the company increased post-merger which means that the merger was beneficial for the acquiring company. If the stock beta of a company is 1, it shows that the price of that security's price will move in tandem with the market. On the other hand if the companys stock beta of stock is lower than 1, it would mean that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. It also signifies that the shareholders will receive a higher rate of return on their investments. The beta of the company increased post-merger which is good for the shareholders of the company. The company also benefitted financially from the acquisition. Postmerger the companys performance improved financially which can be seen below: Table 5.2: Financial Ratios of TATA Steel Year EBITDA Current Ratio 2006-2007 41.34% 2.18 2007-2008 41.93% 0.90 9.44 2008-2009 38.83% 1.12 7.35 2009-2010 39.19% 1.15 5.78 2010-2011 41.58% 1.64 8.52
Interest Cover 37.01 Ratio(in days) Earnings share PE Ratio 6.89 per 65.28
66.80
69.45
60.26
75.63
10.38
2.97
10.50
8.2
The table above shows the financial ratios of the company post acquisition. The performance of the company has improved which shows that the consolidation of Corus with Tata was a good deal. Though the debt portion of Corus increased the liability of the company, this integration of Tata with Corus helped it to achieve 5th place in the Global steel rankings. A positive impact was also found in the share movement of the stock. As shown below in the chart, a comparison was made between Nifty and Tata Steels share price. For the purpose of comparison we have rebased the prices to 100. The graph below shows that the share market performance of the company improved drastically in the year 2007.
Call us: (+91)9881820151
Call us: (+91)9881820151
Chart 5.2: Tata Share price movement with S&P CNX Nifty
1400 1200 1000 800 Tata 600 400 200 0 1-Apr-03 1-Apr-04 1-Apr-05 1-Apr-06 1-Apr-07 1-Apr-08 1-Apr-09 1-Apr-10 1-Apr-11 Nifty
Source: www.yahoofinance.com Capacity and Expansion Plans: The company has a series of ambitious plans with respect to its capacity and expansion. Some of the major ones include: Execution of its plan to increase its crude steel capacity from 6.8 million tonnes per annum to 9.7 million tonnes per annum at its Jamshedpur works by 2011-12, implying an effective doubling since the economic downturn (from 4.8 million tonnes in 2008).
Joint venture with MMTC Limited for steel production which would cater to the increasing steel demand and other mineral based industries in India (Tata steel will hold 74% while MMTC will hold the remainder of 26%). In fact, this is an extremely brilliant move in the area of Steel Production which as per projections is slated to grow to over 120 million tons by the year 2015.
Focus on expansion of the thin margins of Corus through a reworking of its product pricing, procurement policies, asset sweating and improvement in operating efficiencies.
Call us: (+91)9881820151
Call us: (+91)9881820151
Joint venture with Japans Nippon Steel for production and sales of automotive coldrolled flat products at Jamshedpur with estimated investment of US$ 400 million and aimed in the direction of having a viable automobile venture in India.
Future Prospects of Tata Steel: On undertaking a thorough evaluation and analysis of the company from the financial and operational perspective, a few observations can be made: Tata Steels domestic capacity is expected to increase and touch 43% by 2011 with the commissioning of 2.9m-ton crude steel expansion at Jamshedpur. This domestic expansion exercise would significantly increase the proportion of revenue from the highRoE driven business.
Tata Steel has net debt (consolidated) of over US$9bn, with around US$6bn of debt on Corus books. With such a huge quantum of debt and low profitability, the company would ideally aim to reduce its net debt component by around US$2bn in the next two years. This is an ambitious target considering the fact that for the realization of the objective, rising of additional equity is quite essential. The company, in-fact, has made some ground on this front by mentioning that it already has plans for raising fresh equity in the next 12-18 months. However, the very fact that this positive fund-raising exercise would be bugged by an element of low visibility rendering it difficult to factor in the positives on the long term valuation front.
The company recently came out with plans to raise Rs50bn through a mix of debt and equity. We are sceptical whether, at the current market price, it would be able to raise the amount. However, if it manages to do so, this would have a positive effect on the prices.
The operational requirement for Iron ore is presently met from mines which are owned by companies and about 60% of coke requirements stand realized through confined means. However, after the Corus acquisition, the consolidated raw material integration
Call us: (+91)9881820151
Call us: (+91)9881820151
dropped to less than 25% on account of the non-integrated nature of Corus. Therefore, it is required that efforts should be made in the area of effectively increasing the raw material integration process. Last but not least, in the area of raising ROE, the companys management should be credited with making wholesome and aggressive efforts aimed towards expansion of domestic capacity even through steel, as a sector, continues to reel under a severe downturn. Therefore, whatever said and prepared, the top brass needs to be commended for being on track for an addition of 2.9 million tonnes by June11, taking the installed domestic capacity to about 9.7m tonnes.
5.1.2 HCL- Axon Acquisition
HCL was founded in 1998; it is headquartered in Noida, India. HCL Technologies Limited provides software-led information technology (IT) solutions, remote infrastructure management and engineering, research and development (R&D), and business process outsourcing services worldwide. It is one of the leading software companies in India, clocking over $4 billion in revenues, working with clients in areas that impact and redefine the core of their businesses. On the acquisition between HCL and Axon, Mr. Steve Cardell, HCO Axon President said: "HCL Axon has enormous potential, given the complementary strengths of both companies." "The merger of Axon and HCL SAP practice presents a great opportunity for bringing new capabilities to the market with a truly global delivery model. We welcome Axon employees into the HCL family in the form of HCL Axon, HCL Technologies. As a result of the skills brought by the Axon team, the new combined entity, HCL Axon, will pursue business of about $1.2 billion, HCL Axon will have 4,500 SAP consultants, with 1,700 of them from HCL, Mr. Nayar said. Services: HCL provides the following services:
Engineering and R&D Services (ERS)

Call us: (+91)9881820151

Call us: (+91)9881820151
Enterprise Transformation Services (ETS) Business Processing Outsourcing (BPO) Custom Application Services, IT Infrastructure Management Enterprise Application Services (EAS)
HCL Axon Acquisition: HCL Technologies Limited (HCL) on December 2008 announced that its 440m cash offer for the leading UK-based SAP consulting company, AXON Group Plc (AXON) has been successfully completed. Parties Involved HCL Technologies Limited (HCL): 5th largest Indian global IT services company and listed on the Bombay Stock Exchange; HCL, along with its subsidiaries, had consolidated revenues of USD 2 billion as on 30th September 2008. HCL Bermuda Limited: This Company was owned wholly by HCL. For overseas acquisition in the past this company was an acting vehicle for acquisitions by HCL. HCL EAS Limited (HCL EAS): A private company wholly owned by HCL Bermuda, HCL EAS was incorporated in the United Kingdom for the sole purpose of acquisition of Axon Group plc. Axon Group plc. (Axon): Listed on the prestigious London Stock Exchange, Axon is one of the leading players in the enterprise application services (EAS) segment. Axon helped organizations which selected SAP, to fulfil their needs as their strategic enterprise platform. Standard Chartered Bank, UK (SCB): For the acquisition of Axon, the bank was ready to provide a credit of GBP 400 million to HCL EAS.
The diagrammatic representation of the HCLs acquisition of Axon is as follows:
Call us: (+91)9881820151
Call us: (+91)9881820151
Chart 5.3: HCL- Axon Acquisition
India HCL Technologies LTD Guarantee
Bermuda GBP 400 million (US $600 million) HCL Bermuda Limited
UK Loan SCB
GBP 41Million (US $ 58 million)
HCL EAS Limited GBP 441Million (US $ 658 million) Axon Group PLC
Call us: (+91)9881820151
Call us: (+91)9881820151
A timeline of the Acquisition will be given below: January 2008 - HCL initiates negotiations for acquisition of Axon. 25th Aug 25 Infosys made formal bid for acquisition of Axon for GBP 407.1 million (600 pence per share). Implementation agreement concluded and recommendation of the offer was made by Axons board of directors (Board) to the shareholders. 26th Sept. 2008- Scheme document was published for the acquisition proposal made by Infosys. 26th Sept. 2008- A formal bid was announced by HCL for the acquisition of Axon for GBP 441.4 million. September 29, 2008 -60 hours mandatory reaction window for Infosys to make counter bid lapses and Infosys does not revise its offer. October 2, 2008- It was decided by the board to withdraw the proposal for the bid by Infosys and a fresh recommendation should be sent to HCL. October 8, 2008- HCL EAS purchases 301,623 Axon shares, which represent 0.47% of the paid up share capital of Axon, through the open market. October 10, 2008 -Infosys officially withdraws its bid and HCL decides to implement the offer by way of a Scheme. October 12, 2008- HCL EAS purchases 6.71 million shares, which represent 10.43% of Axons paid up share capital, through the open market. 24th October, 2008- Scheme document was published for the acquisition which was proposed by HCL EAS. November 24, 2008- Axon shareholders approve HCLs bid by voting in a court meeting approving the Scheme and in the extraordinary general meeting (99.9% votes). 10th Dec, 2008- High Court hearing for sanctioning the Scheme. 15th December, 2008- Company obtained the approval of the High Court and an announcement for the successful closing of the acquisition of Axon was made by HCL. December 29, 2008- By this date, Axon shareholders had received the full consideration.
Call us: (+91)9881820151
Call us: (+91)9881820151
Findings: HCL acquired Axon in December 2008 therefore in order to analyse the post and preacquisition performance of the company, calculation of the beta pre- merger from April 2005 to December 2008 and post-merger from December 2008 to December 2011 is needed. This will give us a better understanding of the performance of the company post integration. The results are given below: Results of the Analysis and Calculations Year Beta April 2005- December 2008 (Pre0.66 Merger) December 2008 - December2010 1.02 (Post-Merger)
Chart 5.4: Share Price Movement of HCL with Nifty

350 300 250 200 150 100 50 0 1-Apr-05 1-Apr-06 1-Apr-07 1-Apr-08 1-Apr-09 1-Apr-10 1-Apr-11 Nifty HCL
Table 5.3: Financial Ratios of the company: Ratios Current Ratio Net 2007 1.41 2008 1.12 16.68 2009 1.83 20.63 2010 2.24 20.18 2011 2.09 17.22
Profit 29.11
Margin (%)
Call us: (+91)9881820151
Call us: (+91)9881820151
Total debt/Equity EPS(Rs)
0.01
0.01
0.14
0.28
0.17
16.60
11.72
14.88
15.57
17.40
In the case of HCL, the post- merger beta of the company increased but as seen above in the graph the share price of the company post- merger had a negative effect. The financial performance of the company also improved after merger. This helps us to interpret that though the price of the company had a negative effect, the financial performance and beta improved. This concludes that HCLs acquisition of Axon was beneficial for it.
5.2 Primary Research In primary research, data was collected for the some specific research purpose. This data was gathered because it does not exist anywhere presently. Therefore, the data had to be collected by conducting primary research. Primary research is important as it provide an absolute transparent view on what is peoples take on some issue. To collect the required data, an Executive survey was conducted. As stated earlier, emphasis in this paper is on understanding the impact of Mergers or Acquisitions on an acquiring firms performance and in order to understand the investment pattern and priorities of the acquiring companies, it became essential to carry out a survey which could give clear insight in to the psychology of investors. After a thorough analysis of the research and having consulted various other surveys and research papers, we recognised and defined problem areas in this particular sphere and consequently prepared adequate questions. It was essential for the purpose of this study to ask such questions which clearly highlighted investors priorities and strategies for any future investments. A survey was conducted based on 10 questions with multiple choices answers for which the respondents where the executives of companies seeking to invest in other companies and different sectors via merger/acquisition. The result showed that companies going for a merger/acquisition plan a lot before acquiring any company or entering any geography. It was
Call us: (+91)9881820151
Call us: (+91)9881820151
also visible that mergers/acquisitions do create synergy, however, many of the executives did not agree. It has also been seen that synergistically mergers have been very strong and look definite to drive value for the shareholders for the acquiring firms shareholders. Overall the study concluded that financial performance and an acquiring companys shareholders wealth deteriorates post acquisition. It was also understood that operationally and financially a merger would prove successful in the long run as it offers great synergies to the shareholders of both the acquiring firm and the target firm. Question1: With an aim to understand different perspectives regarding mergers and acquisitions, the Executives were asked whether they believe that their company is planning for a merger or an acquisition. 30% of the people agreed that their company is looking for potential targets and once it has chosen them, their company will go for M&A. Almost 26% of the people agreed that their company is currently considering merging with another company. 16% of the people on the other hand agreed that they have recently entered into new markets and whenever any potential target is found they will again go for a merger.15% of them said that currently their company is not focusing on M&A activity with reasons ranging from them not being able to find any proper targets to not being financially strong enough for a merger.
Chart 1: Plan for a Merger

Do not have any idea , 13% Monitoring markets for Potential targets, 30%
M&A is not a focus, 15% Entered new markets via M&A, 16% Currently considering a Merger or Acquisition, 26 %
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 2: Is it important to identify the objectives behind a Merger/Acquisition before analysing and coming to a decision? This question helps us to understand the motives of companies behind their strategy to merge. 33% of the people said that they merge with an aim to grow their market share.23% of the people said that mergers do create synergy which is why their company plans for a merger. 20% said that when they merge with another firm, it gives them an opportunity to enter in new geography. 16% said with M&A they get access to new products as their company doesnt have specialization in that particular product, which further creates operational efficiency as well. Only 8% of the respondents said that with the help of a Merger/Acquisition they can reduce their competitors.
Chart 2: Main objective behind M&A

Reduction in number of competitors, 8 % Access to new products , 16% Access to new geographical markets , 20% Synergy, 23%
Growth in market share, 33%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 3: The next question asked was what kind of companies do acquiring companies usually prefer to acquire, in order to better understand their behaviour. 49% of the respondents preferred to target mid cap companies. 29% of them said that they would target Small cap companies for acquisition reason being that they dont have to pay that much value which they have to for large cap or mid cap companies. Large cap companies were not the preferred option for the respondents. The company which was most preferable to acquire is Mid cap the reason behind could be these companies are in growing stage.
Chart 3: Most preferred companies for M&A
Samll Cap , 29%
Large Cap, 22%
Mid Cap , 49%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 4: In order to understand which Industry is considered most preferable amongst companies planning for a merger and acquisition, we asked the executives which is the most attractive sector to target for M&A. 34% executives choose the telecom sector as their preferred sector. 26% of the executives said that the automotive sector is the most preferable sector for them. On the other hand, 21% of the executives selected manufacturing as their preference for M&A. The reason behind most of the executives opting for telecom was that it is one of the few sectors that are always evolving. The telecom sector is in the growing phase making it the most preferred sector.
Question 4: Most preferable sector
Manufacturing, 2 1%
Financial Services, 19%
Automotive, 26%
Telecom, 34%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 5: M&A activities require a lot of planning and research. Companies tend to look at both, the Industry they prefer along with geographical considerations. To understand the geographical preference of companies we asked the executives what their most preferred geographical location was for a merger/acquisition. 37% of the respondents opted for Asia as their preferred choice. 28% of the respondents opted for China, in particular. The reason behind it could be that these locales are among the emerging markets have more growth. On the ither hand the markets which are already developed are reaching the level of saturation so companies are not considering them at present. Amongst the least preferred was Europe which got 13% as an option for M&A.
Chart 5: Hottest country for M&A
Europe, 13%
America, 22%
Asia , 37%
China , 28%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 6: In order to understand the psychology of investors while investing in companies, what do these executives focus on? This question was important to analyse why an acquiring firm targets a particular company as each company has a motive attached with M&A. So before investing in any company what does it actually see in the target firm? Is it their market share or the financial position? 31% of the respondents said that they focus on a companys expansion plans at the time they short list companies for M&A. 28% of the respondents said that they focus on market share if they want to target any firm.
Chart 6: Criteria for choosing a company:
Operational Effeciency, 17%
Financial Statements, 24%
Market Share , 28%
Expansion Plans , 31%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 7: When a company plans for a merger/acquisition it has to consider every factor such as the availability of finances, the shareholders approval and efficiency of the company to integrate itself with other companies. Therefore we asked the executives what factors they think would influence their companys M&A strategy when planning for an acquisition. 46% of the respondents said that the most important factor to be considered for an acquisition is the availability of attractive acquisition opportunities. 42% of the respondents said that availability of capital is the most important criteria whilst only 12% of the people said that Merger/Acquisition decision is impacted by the state of the economy.
Chart 7: Factors for M&A

The state of the economy, 12% Availability of attractive acquisition opportunities, 4 6% Availability of capital , 42%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 8: In order to understand the companies view on how shareholders would be affected post-merger, we posed the following question: in your opinion, does a shareholder benefit by a merger/acquisition? Shareholders are very important for a company. So whenever a company takes any decision it takes into consideration the interest of shareholders and analyses what their behaviour regarding the companies decisions would be. 76% of the respondents here said that shareholders are surely benefitted by the companys plan of merger or acquisition. Only 26% of the respondents said that shareholders do not gain from M&A activity undertaken by the company. Most of the respondents believed that in the longer run shareholders of company will reap benefits.
Chart 8: Shareholders profitability through M&A decision.
No, 26%
Yes, 74%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 9: The basic objective behind a companys decision to merge or acquire any company is either increasing profitability or increasing market share. Whenever the company plans for a Merger or an Acquisition it looks at the potential impact of this on the companies profitability valuation. A company also considers what effect the acquired companys debt or losses would have on the acquiring firms balance sheet after integration. To understand how Executives feel about this area, the question raised was whether a merger/acquisition is profitable for a company. 53% of the respondents said that yes, a merger/acquisition is profitable for the company. On the other hand, 47% of them said that it does not increase the profitability of the company. In many cases it is found that mergers have proved to be failures for both the target and acquiring company. If the company is strong enough with the financials, market share and operating efficiency it will be a good and attractive company to merge.
Chart 9: Profitability of the company through M&A
No , 47% Yes, 53%
Call us: (+91)9881820151
Call us: (+91)9881820151
Question 10: To understand the respondents view on their own company it was asked whether they believe their company will be sold, downsized or get involved in a spin-off within the next 12 months. 76% of the respondents said that they do not believe that their company will be sold. This also shows the confidence of the executives in their respective companies. 18% said that that yes, there is a probability that their company will be sold in the next 12 months. It depends on the financial performance of the companies or if the company is unable to pay its debts.
Chart 10: Company can be sold

No Idea, 6% Yes, 18%
No , 76%
Call us: (+91)9881820151
Call us: (+91)9881820151
5.3 Limitations of the Study There are various mergers and acquisitions which have taken place during the past couple of centuries within various companies and in different sectors therefore it becomes impossible to analyse every companys post-merger position. It is also not within the scope of this current dissertation to consider all the companies and sectors due to limitations of time and space. Hence we took two companies and tried to come up with an analysis. Two UK based companies which have been involved in mergers/acquisitions have been targeted. Primary research was based on the analysis and in-depth- interviews with the middle level managers of the company which could prove to be challenging, however, due to personal contacts, it did not pose too insurmountable a task to obtain their feedback. The research did not intervene with the professional ethics of the company and due to ethical limitations the identity of the respondents chosen for in-depth interviews was kept confidential.
Summary In this chapter, an analysis of the effects of mergers/acquisitions on the acquiring firms performance with the help of primary and secondary research was undertaken. In the Secondary analysis, a stock market analysis was undertaken and in the primary research the executives of companies were sent the questionnaire. Various companies Beta was calculated although abnormal returns calculations are mostly preferred by researchers, due to constraints of time. In order to calculate risk free rates for the past 10 years for the purposes of this study, Beta calculation was chosen as the preferred method. Both the cases revealed that post-merger, the acquiring firms performance improved. Though in the case of HCL the share market postacquisition was seen as a negative impact but the financial performance and the beta of the company improved.
www.projectsdeal.com 68
Call us: (+91)9881820151
Call us: (+91)9881820151
Chapter 6 Conclusions and Recommendations

6.1 Conclusions The main purpose and aim of this study is to analyse the impact of Mergers and Acquisitions on an acquiring firms performance. On the basis of primary research we can conclude that the acquiring firm is highly affected by the merger. In many of the mergers the affect was positive and in some of the cases it was negative. The surveys also portrayed the clear picture that affect is mainly driven by the target company. If the target company is into huge losses or huge debts it will directly impact the balance sheet of the acquiring company as it then has to pay all the losses and debts therefore many a times mergers have proved to be failures. Companies also face post integration problems. Therefore whenever a company plans to go for a merger or an acquisition it needs to plan each and every activity properly. The results also revealed that companies have specific preferences for sectors and geographies if they want to go for a merger. The reason could be that the company wants to expand itself into that particular geography. and a specific sector because the company wants to enter into new areas rather than the existing one for example the company might want to become a conglomerate and want to enter into all sectors therefore it might plan to enter into new sector. The results of secondary research also revealed that there is a positive impact of the merger on the acquiring firm. Beta of Tata Steel and HCL pre-merger and post- merger was calculated. Beta post- merger increased whilst the financial performance of the company also improved. The stock market price of the company registered high momentum post the year of merger. With the help of all these factors we can safely conclude that the acquiring firm benefitted by this merger. This study analysed the cases and the findings have been constant. It has seen that mergers have proved strong synergistically and look definite to drive the shareholders value of the acquiring firm. To conclude we can say that mergers and acquisitions do not create immediate wealth and margins but in the longer run a consolidated company would be able to better cope with the competition, increased pressure to cut costs and grow in the changing environment.
www.projectsdeal.com 69 Call us: (+91)9881820151
Call us: (+91)9881820151
6.2 Recommendations This study was based on the post-merger effects of Mergers and Acquisitions on the acquiring firms performance. To analyse the same, stock market analysis and financial performance analysis along with primary research was undertaken. Listed companies were taken under consideration and the share price data for pre and postacquisition for 3 years was analysed. This clearly portrayed that post-merger, the beta of the company increased. Further, the financial performance of the company improved significantly. After the analysis and research on the said topic, the following recommendations can be made for further study in this area: For further research and getting an in depth understanding of this topic, unlisted players should also be considered to get an overview of the industry as a whole. The sample size of the research should be extended to 5 years or more which gives a clear understanding on the post-merger effects for a longer period. The accounting measures can also be used further in this study. In spite of calculating the beta, a study can also be conducted by calculating abnormal stock returns. By considering the above points, future research could extend with these recommendations.
Call us: (+91)9881820151
Call us: (+91)9881820151
References
Philippe Very, Michael Lubatkin1, Roland Calori1 And John Veiga, Relative Standing And The Performance Of Recently Acquired European Firms, Strategic Management Journal, Vol. 18:8, 593614 (1997) Bleeke, J., D. Ernst, J. Isono and D. Weinberg (1990) The new shape of cross-border mergers and acquia sitions, McKinsey Quarterly, Spring: 91105. Hitt, M.A., R.E. Hoskisson, R.D. Ireland and J.S. Harrison (1991): Effects of Acquisitions on R&D Inputs and Outputs. Academy of Management Journal 34(3): 693-706. E Akben-Selcuk, A Altiok-Yilmaz, The Impact of Mergers and Acquisitions on Acquirer Performance: Evidence from Turkey, Business and Economics Journal, Volume 2011: BEJ22. Gregory A, 1997, An examination of the long run performance of UK acquiring firms, Journal of Business, Finance and Accounting, 24: 971-1002. Healy P, Krishna P, Ruback R, 1992, Does corporate performance improve after mergers? Journal of Financial Economics, 31: 135-175. Higson C, Elliott J, 1998. Post-takeover returns: The UK evidence. Journal of Empirical Finance, 5: 27-46. Limmack RJ, 1991; Corporate mergers and shareholder wealth effects: 1977-1986, Accounting and Business Research, 21: 239-51. Sharma DS, Ho J, 2002, The impact of acquisitions on operating performance: some Australian evidence. Journal of Business Finance & Accounting, 29: 155-200. Hogarty TF, 1978, The profitability of corporate mergers. The Journal of Business, 33: 317-29.
Call us: (+91)9881820151
Call us: (+91)9881820151
Christian Tuch and Noel OSullivan, The impact of acquisitions on firm performance: A review of the evidence, International Journal of Management Reviews (2007) doi: 10.1111/j.14682370.2007.00206. Agrawal, A., Jaffe, J.F. and Mandelker, G. (1992), The post-merger performance of acquiring firms, Journal of Finance, 47: 16051621. Asquith, P. (1983), Merger bids, uncertainty and stockholder returns. Journal of Financial Economics, 11: 5183. Cosh, A. and Guest, P. (2001). The long-run performance of hostile takeovers: UK evidence. Working Paper, ESRC Centre for Business Research, University of Cambridge. Franks, J., Harris, R.S. and Titman, S. (1991). The post-merger share price performance of acquiring firms. Journal of Financial Economics, 29: 81 96. Gao, L. and Sudarsanam, S. (2004). Value creation in UK high technology acquisitions. Working Paper, School of Management, Cranfield University. Ghosh, A. (2001). Does operating performance really improve following corporate acquisitions? Journal of Corporate Finance, 7: 151178. Ghosh, A. (2004). Increasing market share as a rationale for corporate acquisitions. Journal of Corporate Finance, 11: 209256. Rosen, R.J. (2006). Merger momentum and investor sentiment: the stock market reaction to merger announcements. Journal of Business, 79: 9871017. Sudarsanam, S. and Mahate, A.A. (2003). Glamour acquirers, method of payment and postacquisition performance: the UK evidence. Journal of Business Finance and Accounting, 30: 299341. Shleifer, Andrei and Robert Vishny, Stock Market Driven Acquisitions, Journal of Financial Economics, 72 (2003): 295-312.
Call us: (+91)9881820151
Call us: (+91)9881820151
Lubatkin, M., (1983): Mergers and Performance of the Acquiring Firm, Academy of Management Review, Vol. 8, No. 2, April: 218-225. Loderer, C. and Martin K, (1992): Post-Acquisition Performance of Acquiring Firms, Financial Management, Vol 21, No 3: 69-79. Gadiesh, O., Ormiston, C. and Rovit, S. 2003. Achieving an M&As strategic goals at maximum speed for maximum value. Strategy and Leadership, 31 (3): 35-41. Magnus Bild, Paul Guest, Andy Cosh and Mikael Runsten (2002) Do Takeovers Create Value? A Residual Income Approach on U.K. Data, ESRC Centre for Business Research, University of Cambridge Working Paper No. 252.
Dodd, P. (1980) Merger proposals, management discretion and stockholder wealth. Journal of Financial Economics. 8: 105-138.
Harris Robert S., John F. Stewart, and Willard T. Carleton (1982), Financial Characteristics of Acquired Firms Mergers and Acquisitions: Michael Keenan and Lawrence J. WhiteLexington Books: 223-241 Manne Henry G. (1965), Mergers and the Market for Corporate Control, Journal of Political Economy: 110-120. Trautwein Friedrich (1990), Merger Motives and Merger Prescriptions, Strategic Management Journal, Vol. 11: 283-295 Wansley James W. and William R. Lane (1983), A Financial Profile of Merged Firms, Review of Business and Economic Research, Fall Patrick A. Gaughan, Mergers and Acquisitions in the 1990s: A Record Breaking Decade, Journal of Corporate Accounting & Finance 11, no. 2 (January/February 2000): 303-26 Debra K. Dennis and John J. McConnell, Corporate Mergers and Security Returns, Journal of Financial Economics 16 (2) (June 1986): 143187
Call us: (+91)9881820151
Call us: (+91)9881820151
Bittlingmayer, George, "Merger as a Form of Investment," Kyklos 49 (1996): 127-153. Breen, Denis A. The Potential for Tax Gain as a Merger Motive: A Survey of Current Knowledge and Research Opportunities, Washington, D.C.: Bureau of Economics, Federal Trade Commission (1987) Eckbo, B. Espen, "Mergers and the Market Concentration Doctrine: Evidence from the Capital Market," Journal of Business 58:3 (July 1985) Farrell, Joseph and Carl Shapiro, Scale Economies and Synergies in Horizontal Merger Analysis, Antitrust Law Journal 68 (2001) Sandro Brusco, Giuseppe Lopomo, David T. Robinson, S. Viswanathan, Efficient Mechanisms for Mergers and Acquisitions, Duke University and Universit`a Cattolica di Milano, (2006)
Call us: (+91)9881820151
Call us: (+91)9881820151
Appendices
Questionnaire
Q1. Are you planning for an M&A presently? 1) Monitoring markets for potential targets Acquisition 3) Entered new market via M&A idea Q2. What is the objective behind a Merger /Acquisition? 1) Growth in market share 2) Synergy 5) Reduction in 2) Currently considering a Merger or
4) M&A is not a focus
5) No
3) Access to new geographical markets 4) Access to new products number of competitors Q3. Which companies are usually targeted for an M&A? 1) Large Cap 2) Mid Cap 3) Small Cap
Q4. Which is the most attractive sector for a Merger/Acquisition? 1) Financial Services 2)Telecom 3)Automotive 4) Manufacturing
Q5. In your opinion, what are hottest regions for M&A activity? 1) America 2) China 3) Asia 4)Europe
Q6. While choosing a company for M&A, what do you keep your focus on? 1) Financial Statement Efficiency 2) Expansion Plans 3) Market Share 4)Operational
Q7. Which of the following factors do you think will influence your companys M&A strategy throughout 2011? 1) Availability of attractive acquisition opportunities 3) The state of the economy 2) Availability of capital
Call us: (+91)9881820151
Call us: (+91)9881820151
Q8. In your opinion, is the recession over? 1) Yes 2) No 3) No idea
Q9. In your opinion, does the shareholder get any benefits through a merger/acquisition? 1) Yes 2) No
Q10. In the next 12 months, do you believe your company will be sold, downsized or involved in a spinoff? 1) Yes 2) No 3) No idea
Call us: (+91)9881820151
Call us: (+91)9881820151
Results of the Analysis

Pre-Merger Beta calculation for Tata Steel Date Close Dividend Monthly returns 1-Apr-03 1-May-03 2-Jun-03 1-Jul-03 1-Aug-03 1-Sep-03 1-Oct-03 3-Nov-03 1-Dec-03 1-Jan-04 2-Feb-04 1-Mar-04 1-Apr-04 3-May-04 1-Jun-04 1-Jul-04 2-Aug-04 1-Sep-04 1-Oct-04 1-Nov-04 1-Dec-04 3-Jan-05 1-Feb-05 132.15 158 169.35 208.05 8 253.35 271.35 357.85 360.9 443.3 406.2 427.35 383.65 357.95 296.25 300.95 10 391.95 251.85 289.15 294.35 323.5 385.1 386.45 422.25 20% 7% 28% 22% 7% 32% 1% 23% -8% 5% -10% -7% -17% 5% 30% -36% 15% 2% 10% 19% 0% 9% 934.05 1006.8 Beta =1.45 7.8% Nifty returns
1134.15 12.6% 1185.85 4.6% 1356.55 14.4% 1417.1 1555.9 4.5% 9.8%
1615.25 3.8% 1879.75 16.4% 1809.75 -3.7% 1800.3 1771.9 1796.1 1483.6 1505.6 1632.3 -0.5% -1.6% 1.4% -17.4% 1.5% 8.4%
1631.75 0.0% 1745.5 1800.1 1958.8 2080.5 2057.6 7.0% 3.1% 8.8% 6.2% -1.1%
2103.25 2.2%
Call us: (+91)9881820151
Call us: (+91)9881820151
1-Mar-05 1-Apr-05 2-May-05 1-Jun-05 1-Jul-05 1-Aug-05 1-Sep-05 3-Oct-05 1-Nov-05 1-Dec-05 2-Jan-06 1-Feb-06 1-Mar-06 3-Apr-06 1-May-06 1-Jun-06 3-Jul-06 1-Aug-06 1-Sep-06 3-Oct-06 1-Nov-06 1-Dec-06 2-Jan-07 1-Feb-07 1-Mar-07 2-Apr-07
401.05 340.95 363.3 339.75 13 367.65 390.55 423.5 339.4 349.7 379.95 404.45 431 536.5 637.9 547 533.65 496.2 496.25 535.65 490.45 467.9 482.25 464.9 442.5 449.65 549.45 13
-5% -15% 7% -3% 8% 6% 8% -20% 3% 9% 6% 7% 24% 19% -12% -2% -7% 0.01% 8% -8% -5% 3% -4% -5% 2% 22%
2035.65 -3.2% 1902.5 -6.5%
2087.55 9.7% 2220.6 2312.3 6.4% 4.1%
2384.65 3.1% 2601.4 9.1%
2370.95 -8.9% 2652.25 11.9% 2836.55 6.9% 3001.1 3074.7 5.8% 2.5%
3402.55 10.7% 3508.1 3185.3 3128.2 3143.2 3413.9 3588.4 3744.1 3954.5 3966.4 4082.7 3745.3 3.1% -9.2% -1.8% 0.5% 8.6% 5.1% 4.3% 5.6% 0.3% 2.9% -8.3%
3821.55 2.0% 4087.9 7.0%
Call us: (+91)9881820151
Call us: (+91)9881820151
Post-Merger Beta calculation for Tata Steel
Date
Close
Dividend
Monthly returns
Nifty returns
2-Apr-07 3-May-07 4-Jun-07 2-Jul-07 1-Aug-07 3-Sep-07 1-Oct-07 1-Nov-07 3-Dec-07 1-Jan-08 1-Feb-08 3-Mar-08 1-Apr-08 2-May-08 2-Jun-08 1-Jul-08 1-Aug-08 1-Sep-08 1-Oct-08 3-Nov-08 1-Dec-08 1-Jan-09
549.45 632.15 597.4 656.25 687.05 848 905.95 824.2 932.1 735 800 689.05 814 903 727 654 600 426 213.65 150.6 216.55 184 16 15.5 15.1% -5.5% 12.4% 4.7% 23.4% 6.8% -9.0% 13.1% -21.1% 8.8% -13.9% 18.1% 10.9% -19.5% -7.8% -8.3% -29.0% -49.8% -29.5% 43.8% -15.0%
4087.9 4295.8 4318.3
Beta = 1.75 5.1% 0.5%
4528.85 4.9% 4464 -1.4%
5021.35 12.5% 5900.65 17.5% 5762.75 -2.3% 6138.6 6.5%
5137.45 -16.3% 5223.5 4734.5 5165.9 4870.1 1.7% -9.4% 9.1% -5.7%
4040.55 -17.0% 4332.95 7.2% 4360 3921.2 2885.6 2755.1 0.6% -10.1% -26.4% -4.5%
2959.15 7.4% 2874.8 -2.9%
Call us: (+91)9881820151
Call us: (+91)9881820151
2-Feb-09 2-Mar-09 1-Apr-09 4-May-09 1-Jun-09 1-Jul-09 3-Aug-09 1-Sep-09 1-Oct-09 3-Nov-09 1-Dec-09 4-Jan-10 11-Feb-10 2-Mar-10 1-Apr-10 3-May-10 1-Jun-10 1-Jul-10 2-Aug-10 1-Sep-10 1-Oct-10 1-Nov-10 1-Dec-10 3-Jan-11 1-Feb-11 1-Mar-11
173.1 206.9 238.5 403.5 391.45 463.4 424.1 509.1 471.5 578 617 636.25 574.6 632.25 619 499.75 486.45 535.5 522.4 652 588 586.05 680.6 639 608.6 622 12
-5.9% 19.5% 15.3% 69.2% -3.0% 18.4% -8.5% 20.0% -7.4% 22.6% 6.7% 3.1% -9.7% 10.0% -2.1% -19.3% -2.7% 12.6% -2.4% 24.8% -9.8% -0.3% 16.1% -6.1% -4.8% 2.2%
2763.65 -3.9% 3020.95 9.3% 3473.95 15.0% 4448.95 28.1% 4291.1 -3.5%
4636.45 8.0% 4662.1 0.6%
5083.95 9.0% 4711.7 5032.7 -7.3% 6.8%
5201.05 3.3% 5225.65 0.5% 4922.3 5249.1 5278 5086.3 5312.5 5367.6 5402.4 -5.8% 6.6% 0.6% -3.6% 4.4% 1.0% 0.6%
6029.95 11.6% 6017.7 5862.7 6134.5 5505.9 -0.2% -2.6% 4.6% -10.2%
5333.25 -3.1% 5833.75 9.4%
Call us: (+91)9881820151
Call us: (+91)9881820151
Pre-Merger Beta calculation for HCL
Date
Close
Dividend
Monthly returns
Nifty returns
1-Apr-05 2-May-05 1-Jun-05 1-Jul-05 1-Aug-05 1-Sep-05 3-Oct-05 1-Nov-05 1-Dec-05 2-Jan-06 1-Feb-06 1-Mar-06 3-Apr-06 1-May-06 1-Jun-06 3-Jul-06 1-Aug-06 1-Sep-06 3-Oct-06 1-Nov-06 1-Dec-06
334.85 368.3 389.5 403.6 456.5 455.25 419.2 508.6 539.1 626.4 609.95 654.2 585.75 523.35 504.65 519.85 581.6 550.2 622.35 630.5 641.5
4 10.0% 5.8% 3.6% 13.1% -0.3% 4 -7.0% 21.3% 4 4 6.8% 16.9% -2.6% 7.3% 4 -9.9% -10.7% -3.6% 3.0% 11.9% -5.4% 4 13.8% 1.3% 4 2.4%
1902.5 2087.55 2220.6 2312.3 2384.65 2601.4 2370.95 2652.25 2836.55 3001.1 3074.7 3402.55 3508.1 3185.3 3128.2 3143.2 3413.9 3588.4 3744.1 3954.5 3966.4
Beta = 0.66 9.7% 6.4% 4.1% 3.1% 9.1% -8.9% 11.9% 6.9% 5.8% 2.5% 10.7% 3.1% -9.2% -1.8% 0.5% 8.6% 5.1% 4.3% 5.6% 0.3%
Call us: (+91)9881820151
Call us: (+91)9881820151
2-Jan-07 1-Feb-07 1-Mar-07 2-Apr-07 3-May-07 4-Jun-07 2-Jul-07 1-Aug-07 3-Sep-07 1-Oct-07 1-Nov-07 3-Dec-07 1-Jan-08 1-Feb-08 3-Mar-08 1-Apr-08 2-May-08 2-Jun-08 1-Jul-08 1-Aug-08 1-Sep-08 1-Oct-08 3-Nov-08 1-Dec-08
648.5 600.85 291.4 334.25 344.25 343.95 313.45 305 305 313 318.1 329.95 250 278 254 284.7 313.65 264 198.9 232.1 196.5 173.1 135.1 115.3
1.7% -7.3% -51.5%
4082.7 3745.3 3821.55 4087.9 4295.8 4318.3 4528.85 4464 5021.35 5900.65 5762.75 6138.6 5137.45 5223.5 4734.5 5165.9 4870.1 4040.55 4332.95 4360 3921.2 2885.6 2755.1 2959.15
2.9% -8.3% 2.0% 7.0% 5.1% 0.5% 4.9% -1.4% 12.5% 17.5% -2.3% 6.5% -16.3% 1.7% -9.4% 9.1% -5.7% -17.0% 7.2% 0.6% -10.1% -26.4% -4.5% 7.4%
15.4% 3.0% -0.1% -8.9% -2.7% 0.0%
2 2
3.3% 2.3% 3.7%
-23.6% 11.2% -8.6%
12.9% 10.2% -15.8% -24.7% 16.7% -15.3%
-7.3% -22.0% -14.7%
Call us: (+91)9881820151
Call us: (+91)9881820151
Post- Merger Beta calculation for HCL Date Close Dividend Monthly returns 1-Dec-08 1-Jan-09 2-Feb-09 2-Mar-09 1-Apr-09 4-May-09 1-Jun-09 1-Jul-09 3-Aug-09 1-Sep-09 1-Oct-09 3-Nov-09 1-Dec-09 4-Jan-10 3-Feb-10 2-Mar-10 1-Apr-10 3-May-10 1-Jun-10 1-Jul-10 2-Aug-10 115.3 116 101 103 130.1 167 185.45 240 300.05 341.5 305.8 341 371.05 1 376 365.9 361.5 392.95 1 382.6 363.25 392 381.5 1 1 2 2.3% -12.9% 2.0% 27.3% 28.4% 11.0% 29.4% 25.0% 13.8% -10.5% 11.5% 9.1% 1.6% -2.7% -1.2% 9.0% -2.6% -5.1% 7.9% -2.7% 2959.15 2874.8 2763.65 3020.95 3473.95 4448.95 4291.1 4636.45 4662.1 5083.95 4711.7 5032.7 5201.05 5225.65 4922.3 5249.1 5278 5086.3 5312.5 5367.6 5402.4 Beta -2.9% -3.9% 9.3% 15.0% 28.1% -3.5% 8.0% 0.6% 9.0% -7.3% 6.8% 3.3% 0.5% -5.8% 6.6% 0.6% -3.6% 4.4% 1.0% 0.6% Nifty returns
Call us: (+91)9881820151
Call us: (+91)9881820151
1-Sep-10 1-Oct-10 1-Nov-10 1-Dec-10 3-Jan-11 1-Feb-11 1-Mar-11 1-Apr-11 2-May-11 1-Jun-11 1-Jul-11 1-Aug-11 2-Sep-11 3-Oct-11 1-Nov-11 1-Dec-11
424.4 405.1 405 455 493 442.25 480 523 515 494.65 488 414 407.4 442 388.6 415.45 2 2 1
11.2% -4.3% 0.0% 12.3% 8.8% -10.3% 8.5% 9.4% -1.5% -4.0% -1.3% -15.2% -1.6% 8.5% -12.1% 6.9%
6029.95 6017.7 5862.7 6134.5 5505.9 5333.25 5833.75 5749.5 5560.15 5647.4 5482 5001 4943.25 5326.6 4832.05 5039.15
11.6% -0.2% -2.6% 4.6% -10.2% -3.1% 9.4% -1.4% -3.3% 1.6% -2.9% -8.8% -1.2% 7.8% -9.3% 4.3%
Call us: (+91)9881820151

Dissertation For Finance

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dissertation For Finance

Uploaded by

Copyright:

Available Formats

www.projectsdeal.

Call us: (+91)9881820151

Impact of Mergers and Acquisitions on Acquiring Firms Performance

Call us: (+91)9881820151

Call us: (+91)9881820151

ANGLIA RUSKIN UNIVERSITY Dissertation Declaration

SID Number _____________________________________

Name of Supervisor _____________________________________

Title of Dissertation _____________________________________ _____________________________________ _____________________________________

Word Count _____________________________________

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

List of Charts & Tables

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Chart 1.1: Companies Acquired in UK in last 10 years

Call us: (+91)9881820151

Chart 1.2: No. of acquisitions made abroad by UK companies

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Acquiring through Negotiation

Mergers & Acquisitions

Screening and Shortlisting Target

Valuing the Target

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Chapter 2- Literature Review

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Call us: (+91)9881820151

Title of Dissertation ___________________ _ ___________________