MERGERS & ACQUISITION

INTERNATIONAL BUSINESS
Prepared By
 AKHILESH NAWADE(85)
 PCL – I
 WLC
 Pune
 Mergers- A merger is a combination of two companies
into one larger company, which involves stock swap or
cash payment to the target.

 Acquisition - When one company takes over another

and clearly established itself as the new owner, the
purchase is called an acquisition.
From a legal point of view, the target company ceases
to exist, the buyer "swallows" the business and the
buyer's stock continues to be traded.
Types of mergers.
 Horizontal merger
 Vertical merger
 Conglomeration
 Market-extension merger
 Product-extension merger
 Product extension merger
 WHY?
 Gain market share
 Economies of scale
 Enter new markets
 Acquire technology
 Utilization of surplus funds
 Managerial Effectiveness
 Strategic Objective
 Vertical integration
Why not?
 Grasping for a company simply because its on the
market , or because a competitor wants to buy it.
 Overpayment or misguided purchase.
 Inability to integrate well
 Diverse Business ;Unmanageable.
 Leaping without looking at the value.
Merger

 Nokia- Siemens
 A new 50-50 joint venture company is formed.
 This new company will instantly become the third
largest communications equipment provider in the
world with annual revenues of over 15 billion Euros
or more than US $30 billion
 The new entity is 50-50 joint venture, called Nokia
Siemens Networks and will encompass both fixed-
line and mobile networking products as well as
managed services offered to carriers.
 Nokia Siemens Networks would have annual sales of
close to 16 billion Euros (20 billion dollars) and a
workforce of 60,000, making it number three in the
sector behind Ericsson and Alcatel/Lucent;
 Nokia and Siemens aim to save cash through the
marriage, predicting cost reductions of €1.5bn per
year by 2010.
 The integration of the two businesses would also lead
to job cuts mainly in Germany, with 10-15% of the
combined 60,000-strong workforce - or 9,000 jobs in
all - to be axed over the next four years
Major Acquisitions – Big Deals

Target Buyer Value($bn) Year

Arcelor Mittal Steel 31 2006

NKK Corp Kawasaki Steel 14.1 2001

LNM Holdings Ispat Intl 13.3 2004
Tata Corus 12 2006
Krupp AG Thyssen 8.0 1997
Dofasco Arcelor 5.2 2005

Intl Steel Mittal Steel 4.8 2005

Acquisition
 Structure
 Asset Purchase
 Business Purchase
 Share Purchase
 A Mixture
 Apportionment of Risk
 No Hidden matters
 Remedy – warranty
 Indemnity
Acquisition
 TATA-CORUS
 Tata acquired Corus, which is four times larger than
its size and the largest steel producer in the U.K. The
deal, which creates the world's fifth-largest
steelmaker, is India's largest ever foreign takeover
and follows Mittal Steel's $31 billion acquisition of
rival Arcelor in the same year.
 Tata acquired Corus on the 2nd of April 2007 for a
price of $12 billion. The price per share was 608
pence, which is 33.6% higher than the first offer
which was 455 pence.
Acquisition Process

Particulars Corus TATA Steel Ltd

Currency: Rupee Millions Currency: Rupee Millions

Year 2006 2005 2004 2006 2005 2004

ASSETS 205,450.70
582750.00 533925.00 467775.00 177,033.10 147,988.70

DEBTS 98100.00 105525.00 96000.00 45,932.70 42,073.10 39,982.90

LIABILITIES 231300.00 178425.00 155475.00 30492.10 33146.80 32665.90

REVENUE 202,444.30
760500.00 699900.00 596475.00 159,986.10 111,294.40

NET INCOME 37,346.20

33900.00 33450.00 -22875.00 36,032.60 17,887.80
Process of Acquisition
 Finding A Target Business
 Appointing Advisers
 Negotiating terms
 Due Diligence
 Exchange of Contracts
 Completion
Finding A Target Business
 Synergy of Operations
 Help the Organizations to Achieve Strategic
Objectives
 Enter new markets
 Vertical Integration
Appointing Advisers
 The Right Chemistry
 The Right Experience
 Size is not Everything
 Talk Your Language
CORUS TATA

J P MORGAN ABN AMRO

CAZENOVE DEUTSCHE BANK

HSBC STANDARD CHARTERED

Negotiating Terms
 The nature of the fit
 Commonality of client base
 Financial strength
 Strategic intent
 Sharing of resources
 Applicable Benefits
Negotiation By Tata
 September 20, 2006 : Corus Steel has decided to acquire a strategic
partnership with a Company that is a low cost producer
 October 5, 2006 : The Indian steel giant, Tata Steel wants to fulfill its
ambition to Expand its business further.
 October 6, 2006 : The initial offer from Tata Steel is considered to be too
low both by Corus and analysts.
 October 17, 2006 : Tata Steel has kept its offer to 455p per share.
 October 18, 2006 : Tata still doesn’t react to Corus and its bid price
remains the same.
 October 20, 2006 : Corus accepts terms of £ 4.3 billion takeover bid from
Tata Steel
 October 23, 2006 : The Brazilian Steel Group CSN recruits a leading
investment bank to offer advice on possible counter-offer to Tata Steel’s
bid.
 October 27, 2006 : Corus is criticized by the chairman of JCB, Sir Anthony Bamford,
for its decision to accept an offer from Tata.
 November 3, 2006 : The Russian steel giant Severstal announces officially that it will
not make a bid for Corus
 November 18, 2006 : The battle over Corus intensifies when Brazilian group CSN
approached the board of the company with a bid of 475p per share
 December 18, 2006 : Within hours of Tata Steel increasing its original bid for Corus
to 500 pence per share, Brazil's CSN made its formal counter bid for Corus at 515
pence per share in cash, 3% more than Tata Steel's
Offer.
 January 31, 2007 : Britain's Takeover Panel announces in an e-mailed statement that
after an auction Tata Steel had agreed to offer Corus investors 608 pence per share in
cash
 April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full
voting support from Corus’ shareholders
Taxation and Accountancy Considerations
 Tension between Acquisition / sale of shares or assets.
 Due Diligence
 Tricky areas
 Accounting issues
 Accounting policies of the Target
 Accounting for Goodwill
 Fair value accounting
 Earnings per share
 Other Matters
Legal Documentation
Share sale Agreement
 The shares being sold
 The Price
 Restrictive Agreements
 Warranties
 Conditions to the Deal
 Transferring tangible assets
 Transferring Intangible assets
 Transferring Liabilities
 Transferring Employees
Legal Documentation
 The Tax Deed

 The Disclosure Letter

Financing the Deal
 TATA- CORUS Deal - $12 billion

 Equity Contribution from Tata Steel- $3.88 billion

 Credit Suisse leaded, joined by ABN AMRO and

Deutsche Bank in the consortium.

 Of the $ 8.12 billion of financing , Credit Suisse

provided 45% and ABN AMRO and Deutsche
provided 27.5% each.
DEVELOPING A POST-
ACQUISITION STRATEGY:

1. The first 100 days

2. In-house systems synergy
First 100 Days: Conflict Points

1. Time Factor
2. Leadership style differences
3. Who’s in charge? (Who won?)
4. Organic vs. bureaucratic cultures
5. Open vs. closed communication
6. Decision making speed & style
7. Structures that don’t match
 In-house systems synergy
Product Leadership
(best product)

Operational Excellence Customer Intimacy

(low cost producer) (best total solution)
 Strategy: Disciplines, Priorities
 Operational
OperationalExcellence Product
 Excellence ProductLeadership
Leadership Customer
CustomerIntimacy
Intimacy

 Competitive
Competitivepriceprice •• New
Newproducts
productsor
or •• Easy
Easyto
todo
dobusiness
business

 Error
Errorfree,
free,reliable
reliable services with
services with

 Fast
Fast(on
(ondemand)
demand) •• Risk
Risktakers
takers •• Have
Haveitityour
yourway
way

 Simple
Simple (customization)
(customization)
 Responsive •• Meet
Meetvolatile
volatilecustomer
customer
 Responsive
Consistent needs •• Market
Marketsegments
segmentsof
Consistentinformation needs of

 information
for all
for all one
one
•• Never
Neversatisfied
satisfied- -
 'Once
'OnceandandDone'
Done' obsolete •• Proactive,
obsoleteown
ownand Proactive,flexible

and flexible
competitors' products
competitors' products •• Relationship
Relationshipand
and
•• Learning
Learningorganization
organization consultative
consultativeselling
selling
•• Cross
Crossselling
selling
 Business
Resources
Structure Objective
M&A
Strategy
Culture
Leadership

Person
Global Steel Ranking: (Ranking of Tata steel before deal- 55)

Company Capacity (in

million tonnes)

Arcelor - Mittal 110.0

Nippon Steel 32.0
Posco 30.5
JEF Steel 30.0

Tata Steel - 27.7

Corus

Bao Steel China 23.0

US Steel 19.0
Nucor 18.5
Riva 17.5
Thyssen Krupp 16.5
Conclusion

 With Corus in its fold, Tata Steel can confidently target

becoming one of the top-3 steel makers globally by 2015. The
company would have an aggregate capacity of close to 56
million tones per annum, if all the planned Greenfield
capacities go on stream by then.

 We can conclude that if the acquisitions well planned ,

Executed and the necessary precautions taken for the deal a
company can achieve its strategic objectives and thus ensure its
growth through Acquisition.
THANK YOU