Anda di halaman 1dari 30

Content Introduction...3 Chapter 1. Mergers and acquisitions and their essence.4 1.

1 Concept, types and reasons of mergers and acquisitions.........4 1.2 Overall process of mergers and acquisitions...8 1.3 The ways of financing of mergers and acquisitions: international experience13 Chapter 2. Processes of mergers and acquisitions in Kazakhstan: features and tendencies16 2.1Peculiarities of mergers and acquisitions' market in Kazakhstan...16 2.2 Merger of Bank CenterCredit and Kookmin Bank.22 Conclusion...26 List of used literature...28 Appendixes

Introduction In business there is one simple rule: grow or die. Companies on a growth path will take away market share from competitors and provide returns to shareholders. Those that do not grow tend to stagnate, lose customers and market share, and destroy shareholder's value. Mergers and acquisitions play a critical role in both sides of this cycle enabling strong companies to grow faster than competitors and providing entrepreneurs rewards for their efforts, and ensuring weaker companies are more quickly swallowed, or worse, made irrelevant through exclusion and ongoing share erosion. Mergers and acquisitions are a vital part of any healthy economy and importantly, the primary way that companies are able to provide returns to owners and investors. This fact, combined with the potential for large returns, make acquisition a highly attractive way for entrepreneurs and owners to capitalize on the value created in a company. The urgency of this theme is that mergers and acquisitions are now a normal way of life within the business world. In today's global, competitive environment, mergers are sometimes the only means for long-term survival. In other cases, mergers are a strategic component for generating long-term growth. And during world financial crisis companies which have difficulties with profits seek to survive by any means even by M&A. The subject matter of this paper is to discuss the costs and benefits of merger and acquisition (M&A). This course work provides a concise overview of the merger and acquisition process. The purpose of the course work is to give a solid understanding of how mergers and acquisitions works and financed. To achieve these goals the following tasks were solved: to consider the various definitions of mergers and acquisitions in domestic and foreign literature, to explore the classification of these transactions by various criteria; to analyze the motives that drive companies to enter in transactions M & A; to compare features of mergers and acquisitions in the global and domestic market; to evaluate the characteristics of development of M & A in Kazakhstan. to analyze the structure, dynamics and trends of mergers and acquisitions in the world and in Kazakhstan to give peculiarities of financing deals in Kazakhstan and in world. The first chapter includes the theoretical aspects of mergers and acquisitions, major classification are determined, explores possible ways of financing of mergers and acquisitions. In this work horizontal, vertical and conglomerate types of merger are described, motives for M&A are outlined, overall process of M&A are identified, the methods of M&A financing are explored. The second chapter is devoted to the Kazakhstani market of mergers and
4

acquisitions. Chapter 1. Mergers and acquisitions and their essence 1.1 Concept, types and reasons of mergers and acquisitions Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day investment bankers all over the world arrange M&A transactions, which bring separate companies together to form larger ones. Deals can be worth hundreds of millions, or even billions, of dollars. Recent years have seen a significant increase in M&A activity within industries that are growing rapidly and evolving overall, such as in health care, information technology, communications, and software development, as well as in traditional industries such as manufacturing, consumer products and food services. One plus one makes three: this equation is the special formula of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that is the reasoning behind M&A. The terms of merger and acquisition are often confused or used interchangeably. It is important to understand the difference between these two terms. Merger is a combination of two or more companies, often they have the same size, in which the assets and liabilities of the selling firm are absorbed by the buying firm. When we use the term "merger", we are referring to the merging of two companies where one new company will continue to exist. Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. Acquisition is the purchase of an assets such as a plant, a division, or even an entire company by one company from another company. The acquiring company will remain in business and the acquired company (which sometimes called the target company) will be integrated into the acquiring company and thus, from legal point of view the acquired company ceases to exist. For example, Procter & Gamble made a major acquisition in 2005 when it purchased The Gillette Company, Inc., in order to extend its niche in the consumer products industry. A merger typically refers to two companies joining together to become one. An acquisition typically has one company the acquirer that purchases the assets or shares of another company - the acquiree, in the form of payment as cash, the securities of the buyer, or other assets to seller. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words,
5

the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders. The rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, costefficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Regardless of their category or structure, all mergers and acquisitions have one common goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved. When a deal is improperly valued, one side wins big while the other loses big. A transaction is a failure if it does not create value for shareholders and the easiest way to fail, therefore, is to pay too high a price. To be successful, a transaction must be fair and balances, reflecting the economic needs of both buyer and seller, and convey real and durable value to the shareholders of both companies. Achieving this involves a review and analysis of financial statements, a genuine understanding of how the proposed transaction meets the economic objectives of each party and recognition of the tax, accounting, and legal implications of the deal. In the modern corporate management can distinguish many different types of mergers and acquisitions. The most important features of the classification of mergers include: 1. by functional feature: a) Horizontal merger merger of two companies that are in direct competition and share the same markets. Horizontal mergers are often used as a way for a company to increase its market share by merging with a competing company, as well as achieving economies of scale of activity, reduce costs and use resources more efficiently. In terms of planning such transactions are the most simple, because they can provide obvious benefits. For example, the merger between Exxon and Mobil will allow both companies a larger share of the oil and gas market. b) Vertical merger two firms are merged along the value-chain, such as a manufacturer merging with a supplier. Vertical mergers are often used as a way to gain a competitive advantage within the marketplace. In this case, the main task of the company-buyer - the expansion of activities, entering into new markets, attracts a new range of customers. Such transactions require very careful preparation. It may be technically possible consolidation, but is economically disadvantageous. Another problem - the technological changes that could make the separate chains of the merged company unnecessary or less effective than expected. Results of vertical mergers, as a rule, appear much later than the horizontal.
6

Disney's acquisition of American Broadcasting Company (ABC) is an example of vertical merger. Disney is a leading provider of family entertainment while ABC is a broadcasting company with news, cable, and entertainment networks. With this acquisition Disney hopes to boost its primary business of family entertainment. The deal is vertical merger because Disney purchases a distribution network for its products. c) Conglomerate merger - generally a merger between companies which do not have any common business areas or no common relationship of any kind. Consolidated firm may sell related products or share marketing and distribution channels or production processes. Conglomerates are usually used as a way to smooth out wide fluctuations in earnings and provide more consistency in longterm growth. Typically, companies in mature industries with poor prospects for growth will seek to diversify their businesses through mergers and acquisitions. Such kind of merger may be broadly classified into following: a) Market-extension merger - two companies that sell the same products in different markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base. RBC Centura's acquisition of Eagle Bancshares Inc. is an example of marketextension merger. Eagle Bancshares, headquartered in Atlanta, Georgia, has 283 employees, approximately 90,000 accounts and assets of US$1.1 billion. It owns and operates Tucker Federal Bank, the 10th largest bank in metropolitan Atlanta in terms of deposit market share. The acquisition of Eagle Bancshares is another step in RBC's North American growth strategy. Eagle provides further geographic diversification for RBC and enables RBC to gain a footprint in Atlanta, one of the fastest growing markets in the United States. b) Product-extension merger - two companies selling different but related products in the same market. Broadcom's acquisition of Mobilink Telecom Inc. is an example of productextension merger. Broadcom manufactures chips for wireless LAN and Bluetooth personal area network hardware while Mobilink makes chips and product designs for GSM (Global System for Mobile Communications) handsets and is completing certification of GPRS (General Packet Radio Service) high-speed wireless networking chips. Its products will complement Broadcom's wireless offerings. c) Pure Conglomerate merger - two companies which merge have no obvious relationship of any kind. For example merger of Pizza Hut and PepsiCo. In 1977, Pizza Hut, Inc. stockholders overwhelmingly approved a merger with PepsiCo, Inc. and the company was a critical component of PepsiCos Food Service Division. 2. By geographical feature: a) national (domestic M&As). For example, the merger of Chase Manhattan Corporation with J.P. Morgan & Company. The name of the new company formed as a result of the merger is J.P. Morgan Chase & Company. Both companies are located and registered in USA.
7

b) international (cross-border M&As). For example, merger of NYSE Group, Inc. and Euronext N.V., was launched on April 4, 2007. Thus creating NYSE Euronext it became the world's largest and most liquid exchange group and offers the most diverse array of financial products and services. NYSE Euronext, which brings together six cash equities exchanges in five countries and six derivatives exchanges, is a world leader for listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data. 3. By behavioral feature: a) friendly merger - a merger, under which managers and shareholders of the acquiring and the acquired companies support the deal; b) hostile M&As - mergers and acquisitions in which the management and shareholders of the target company disagrees with deal and implements a number of anti-takeover actions. In this case, the acquiring company has to conduct in the securities market act against the target company with the purpose of acquisition. However, practice shows that a merger can only be friendly, while the acquisition can be friendly or hostile. According to the method of payment of M&As can be divided into a) paid by cash and b) through the exchange of shares. At the first case, corporation-buyer pays to another company by paying a certain sum of money. In the second case, it issues a certain number of its shares in order to exchange them for all the shares of the acquired company for a certain ratio. Type of mergers depends on the situation in the market, as well as the strategies of companies and resources available to them. Mergers and acquisitions have their own characteristics in different countries or regions of the world. For example, unlike the U.S. where there are a merger or acquisition of large firms, in Europe is the acquisition of small and medium-sized companies, family businesses, small joint- stock companies of related industries. Having considered all the many types of mergers and acquisitions, understand their natures, we can already form an opinion regarding what motivates companies in M&A transactions. Why do the companies want to merge? Every merger has its own unique reasons why the combining of two companies is a good business decision. Theory and practice of modern corporate management gives a lot of reasons to explain mergers and acquisitions. Identifying the motives of mergers is very important; they reflect the reasons for which two or more companies, together, are more expensive than individually. A rise in the capitalized value of the combined company is the goal of most mergers and acquisitions. Analyzing the global experience and systematizing it, we can say that there are two types of motives involved in merger and acquisition: explicit and implicit motives. Explicit motives include: 1) Synergy is the main reason that companies merge. Through synergy, managers create greater value with the integration of two companies, rather than that of their individual parts. The underlying principle behind M & A is principle of synergy
8

formulated as: 1 + 1 = 3. The value of Company A is $1 billion and the value of Company B is $1 billion, but when we merge the two companies together, we have a total value of $3 billion. The joining or merging of the two companies creates additional value which called "synergy" value. For the most part, the biggest source of synergy value is lower expenses. Many mergers are driven by the need to cut costs. Cost savings often come from the elimination of redundant services, such as human resources, accounting, information technology, etc. 2) Economies of scale: refer to the reduction in unit cost achieved by producing a large volume of a product. Horizontal mergers aim at achieving economies of scale. This phenomenon continues while the firm grows to its optimal size, after which a firm experiences diseconomies of scale. 3) Economies of vertical integration: are achieved in vertical mergers. It makes coordination of closely related operating activities easier. 4) Entry to new markets and industries: A firm that wants to enter a new market but lacks the know-how can do so through the purchase of an existing player in that product or geographical market. This makes the two firms worth more together than separately. 5) Tax advantages: Past losses of an acquired subsidiary can be used to minimize present profits of the parent company and thus lower tax bills. Thus, firms have a reason to buy firms that have accumulated tax losses. 6) Diversification: One of the reasons for conglomerate mergers is diversification of risk. There are two types of risks associated with businesses- systematic and unsystematic risk. Systematic variability cannot be removed by diversification and hence mergers are not able to eliminate this risk. Though, unsystematic risk can be spread through mergers. 7) Managerial motives: The management team of the acquiring firm tends to benefit from the merger activity. The four most important managerial motives for merger are empire building, status, power and remuneration. Implicit motives are: 1) Hubris: It is like a maturity test for the owners and the company boards of directors when they see the opportunity to form a new business cycle. 2) Excess of money: When a company has excess of money, the question of what to do with it eventually comes up and this leads towards merger and acquisition. 1.2 Overall process of mergers and acquisitions. After determining reasons and motives of M&A, we should consider overall process of M&A. The M&A process can be broken down into five phases (scheme 1): 1) Pre-acquisition or pre-merger review. The first step is to assess your own situation and determine if a M&A strategy should be implemented. If a company expects difficulty in the future when it comes to maintaining core competencies, market share, return on capital, or other key performance drivers, then a M & A program may be necessary.
9

It is also useful to ascertain if the company is undervalued. If a company fails to protect its valuation, it may find itself the target of a merger. Therefore, the preacquisition phase will often include a valuation of the company. The primary focus within the pre-acquisition review is to determine if growth targets (such as 10% market growth over the next 3 years) can be achieved internally. If not, an M & A team should be formed to establish a set of criteria whereby the company can grow through acquisition. A complete rough plan should be developed on how growth will occur through M & A, including responsibilities within the company, how information will be gathered, etc.
Pre-acquisition or pre-merger review

Search and screen targets Investigate and value the target

Acquire through negotiation

Post-merger or post-acquisition integration Scheme 1. M&A process

2) Search and screen targets. The second phase within the M & A process is to search for possible takeover candidates. Target companies must fulfill a set of criteria so that the target company is a good strategic fit with the acquiring company. For example, the target's drivers of performance should compliment the acquiring company. Compatibility and fit should be assessed across a range of criteria - relative size, type of business, capital structure, organizational strengths, core competencies, market channels, etc. It is worth noting that the search and screening process is performed in-house by the acquiring company. Reliance on outside investment firms is kept to a minimum since the preliminary stages of M & A must be highly guarded and independent. 3) Investigate and value the target. The third phase of M & A is to perform a more detail analysis of the target company. You want to confirm that the target company is truly a good fit with the acquiring company. This will require a more thorough review of operations, strategies, financials, and other aspects of the target company. This detail review is called "due diligence." The main objective is to identify various synergy values that can be realized through an M & A of the target company. Investment bankers now enter into the M & A process to assist with this
10

evaluation. A key part of due diligence is the valuation of the target company. In the preliminary phases of M & A should be calculated a total value for the combined company. We have already calculated a value for acquiring company. We now want to calculate a value for the target as well as all other costs associated with the M & A. The calculation can be summarized as follows: Value of acquiring company Value of target company Value of synergies Less M&A costs (legal, investment bank) Total values of combined company
Table 1. Value of combined company

$ 560 $ 176 $ 38 $9 $ 765

4) Acquire through negotiation. Now that we have selected target company, it's time to start the process of negotiating a M & A. We need to develop a negotiation plan based on several key questions: - How much resistance will we encounter from the Target Company? - What are the benefits of the M & A for the Target Company? - What will be our bidding strategy? - How much do we offer in the first round of bidding? The most common approach to acquiring another company is for both companies to reach agreement concerning the M&A, i.e. a negotiated merger will take place. This negotiated arrangement is sometimes called a "bear hug." The negotiated merger or bear hug is the preferred approach to a M & A since having both sides agree to the deal will go a long way to making the M&A work. In cases where resistance is expected from the target, the acquiring firm will acquire a partial interest in the target; sometimes referred to as a "toehold position." This toehold position puts pressure on the target to negotiate without sending the target into panic mode. In cases where the target is expected to strongly fight a takeover attempt, the acquiring company will make a tender offer directly to the shareholders of the target, bypassing the target's management. Tender offers are characterized by the following: - the price offered is above the target's prevailing market price. - the offer applies to a substantial, if not all, outstanding shares of stock. - the offer is open for a limited period of time. - the offer is made to the public shareholders of the target. A few important points worth noting: Generally, tender offers are more expensive than negotiated M & A's due to the resistance of target management and the fact that the target is now "in play" and may attract other bidders. Partial offers as well as toehold positions are not as effective as a 100% acquisition
11

of "any and all" outstanding shares. When an acquiring firm makes a 100% offer for the outstanding stock of the target, it is very difficult to turn this type of offer down. Another important element when two companies merge is due diligence. Due diligence started when we selected our target company. Once we start the negotiation process with the target company, a much more intense level of due diligence will begin. Both companies, assuming we have a negotiated merger, will launch a very detail review to determine if the proposed merger will work. This requires a very detail review of the target company - financials, operations, corporate culture, strategic issues, etc. 5) Post merger integration. If all goes well, the two companies will announce an agreement to merge the two companies. The deal is finalized in a formal merger and acquisition agreement. This leads us to the fifth and final phase within the M & A process, the integration of the two companies. Every company is different - differences in culture, differences in information systems, differences in strategies, etc. As a result, the post merger integration phase is the most difficult phase within the M & A process. As mentioned above, mergers and acquisitions are extremely difficult. Expected synergy values may not be realized and therefore, the merger is considered a failure. 1.3 The ways of financing of mergers and acquisitions: international experience. Speaking about mergers and acquisitions, it is impossible to overestimate the role of financing in conducting such transactions: availability of free financial resources is the starting point for the initiation of M & A deals, and then solvency of the company-buyer carefully monitored by government authorities. Thus, in the U.S. within 10 days from the date of registration of offer to buy shares of another company must disclose sources of funding for the Securities and Exchange Commission.
The ways of financing M&As Method of financing 1) Debt financing Sources of funds Commercial banks; Pension funds;

2) Funding through its own or equity Securities market; financing Venture capital company; Private investors; 3) Mixed or hybrid financing. Credit institutions; Pension funds; Venture capital company; Investment funds.
Table 2. Sources of funds 12

Financing transactions M & A - an investment of funds allocated to "pay" M&A. Refinancing of such transactions - a change of conditions of payment of transaction, previously stipulated in the contract. The main methods of financing M & A transactions include: 1) debt financing; 2) funding through its own or equity financing; 3) mixed or hybrid financing. These three methods are also called "paper financing". Let's assume all methods separately. Instruments of debt financing are: term credit, revolving credit, bridge loan, commercial paper, bonds. Term loan - a debt contract under which the borrower agrees to regularly pay a lender in established terms contributions to the repayment of principal and interest. Typically, the lenders are the commercial banks, insurance companies and pension funds. Term of the term loan can range from 1 year to 15 years, but most of these loans are granted for 3-7 years under a provision of the basic funds of the company. A distinctive feature of this instrument of debt financing is the quickness of fund raising and the relatively low cost of debt servicing. Revolving credit - a credit line, often used by large firms, usually provided under the provision of short-term account receivables and inventory of the company. In this case, at the opening of a loan or credit line employees of the bank-creditor shall estimate the assets of the company and establish a credit limit, and subsequently monitor the assets, which are provisions. Companies use revolving credit in those cases when they cannot get conventional bank loan, and try to use the funds to short-term needs. The main advantage of the revolving credit is that it can be returned at any time. The largest amount of revolving credit to finance mergers and acquisitions - a $ 500 million - was granted in 1998 to Chrysler Corporation for financing its merger with the German motorcar giant DaimlerBenz. In 1999, the British company "Vodafone" to finance the acquisitions of the American telecommunication company "AirTouch" received revolving loans totaling $ 7.5 billion and a term loan for one year worth $ 3 billion. Revolving loans have been divided into two: $ 4 billion for a 1 year and $ 3.5 billion for a 5 years. Another one instrument for financing mergers and acquisitions is the bridge loan. They are provided to companies for the implementation of immediate short-term financing transactions and are required to be exchanged for "junk" bonds. More often than others to finance mergers and acquisitions are used term and revolving loans, but sometimes companies prefer to use other, non-credit sources. As mentioned above, companies to finance mergers and acquisitions can use commercial papers, debt securities, and account receivables, and the leasing of assets. Commercial paper - a form of unsecured promissory notes, the issue of which
13

carries out mainly large stable company, because the cost of attracted capital is determined primarily by the credit rating of the issuing company. Often the cost of this type of financing below the cost of bank loans. These bills guarantee low income, issued for the period from 2 to 270 days and are one of the most popular instruments of short-term financing M & A transactions. In addition to low cost, they guarantee a fast access to financial resources, and the issue of quickness of payment of transactions is a key in the final stages of the M & A deals, and delays could lead to their breakdown. So, just by issuing commercial paper in 1999, was refinanced acquisition by British telecommunication company Vodafone American company AirTouch worth $ 10.5 billion. Another instrument of debt financing are bonds - debt securities. For a sufficiently long term circulation, which can reach 5 years, bonds are usually guaranteed a fixed income to its owners, the cost of capital for the company-borrower is usually considerably lower that the use of short-term securities. In this regard, often practiced by the original process of raising capital for immediate financing transactions through the placement of commercial paper and their subsequent conversion into bonds. Just so in 2001 it was refinanced acquisition Clairol (American manufacturer of hair care products) by Procter & Gamble common worth $ 5 bln. Financing mergers and acquisitions in bonds has its negative sides. In this case, possibly lowering the credit rating company, which in turn makes the condition subsequent borrowing less attractive. Among other sources of debt financing M & A deals are the use of debt as collateral, and leasing (the initial sale of equipment purchased for subsequent leasing). Their use is quite limited, since the volume of attracted funds is limited. 2) financing with attraction of share capital; The second method of financing transactions of M&A is financing with the use of equity: in 1995-2000 from 30 to 40% of the total M & A deals were financed through the exchange of stocks. The idea is that companies who choose to bargain M & A deal, conducted an additional issue of stocks which further exchanged for shares of acquired or merged company. Thus, the merger of pharmaceutical companies SmithKline Beecham PLC and Glaxo Wellcome PLC in 2000 worth $ 76 billion and merger of Pfizer and Warner - Lambert worth $ 90 billion have been financed through the exchange of stocks. The most common methods of payment transactions in shares of the acquiring company: 1) the new issue of stocks; 2) repurchase of shares from its shareholders; 3) use of previously repurchased shares (treasury stock); 4) use of undistributed shares of latest issue - stock put on the shelf. The main difference between the financing with attraction of loan capital and financing with share capital is that in the second case, the lender has the right to participate in the management company and receives a portion of its profits, whereas in debt financing the lender receives only the right to demand the return of
14

the given funds and interest for their use. 3) method of financing of mixed or hybrid financing. The third type of financing of M&As, as mentioned above, is a hybrid, or mixed funding. It means this method includes tools that carry the features of a debt financing and using share capital simultaneously. Hybrid financing instruments are: preferred stocks, warrants, convertible securities, securitized loans and the median financing (mezzanine financing). Preferred stocks give the right to the owner for participation in the profits and assets in the event of liquidation. Traditionally, the preferred stocks are considered more risky securities than bonds, in connection with which investors demand higher yields on those securities. Some preferred stocks are similar to the bonds without time limits and have no maturity date, however, most related to the sinking fund, with a condition to make annual payment of at least 2% of the issue. Preferred stock (usually convertible) has also been used extensively in mergers and acquisitions. Frequently, acquiring companies issue preferred stock in exchange for the common stock of acquired companies. For example, Chrysler issued (convertible) preferred stock when it acquired American Motors. This, in effect, is another example of financial leverage, and it can cause an increase in the earnings per common share of the acquiring company. Warrant - the option is issued by the company that gives its owner the right to buy a specified number of stocks at a specified price. Warrants are often distributed during the placement of the loan and are used in order to induce investors to buy long-term bonds of a firm with a lower interest rate than under other conditions of purchase. In the early 90s, AT & T placed a bond loan with warrants for $ 1.57 billion. This was the largest transaction of M & A financing ever undertaken by anyone, and this operation was the first use of warrants by such strong and large corporation. Convertible securities - are bonds or preferred stocks, which at certain times and under certain conditions can be exchanged for common stock by their holder. In contrast to the execution of warrants, which bring the company additional funds, conversion of securities does not bring an additional capital. Such operations of exchange only improve the financial condition of the company (as on the balance sheet occurs a decrease of borrowing funds in the total funds of company) and facilitate attraction of additional capital. Most of the issue of convertible securities carried out with a condition of the possibility of their withdrawal, which allows a company-issuer to repay the loan or cause its conversion - depending on the ratio between the conversion price of the securities and the price of buy-out. An example of financing mergers and acquisitions with the convertible securities are the actions of the American company AT & T, which in 2000 placed the convertible preferred stocks worth $ 5 billion to finance the acquisition of the company produces the cable Media One. Placement was accompanied by the issue of warrants. In general, firms that issue bonds with warrants, have a smaller sizes and more
15

higher risk than firms that issue convertible bonds. Under the securitization of assets understood conversation of the company's debt into securities with the aim to their subsequent placement among investors. Thus, the securitized credit - a loan of the company turned into securities. The oldest type of asset securitization are securities backed by mortgages. Currently as collateral or securitization uses a variety of assets including account receivables of the company. It should be noted that only large companies are able to use the securitized loans to finance mergers and acquisitions.
Senior Debt Subordinated debt Financial risk Preferred stock Common Stock Higher costs

Figure 1. Financing of M&A The triangle in the figure 1 provides a view of acquisition financing mechanism. As the options for financing the acquisition would increase, the layers in the triangle would also increase. But the basic question that arises or the consideration that comes is whether the transaction should be made in cash or stock as it has different effect on the various stakeholders of both the organizations the acquiring firm as well as the target firm. The influence of method of payment on post-merger financial performance is ambiguous.

16

Chapter 2. Processes of mergers and acquisitions in Kazakhstan: features and tendency 2.1 Peculiarities of mergers and acquisitions' market in Kazakhstan The merger and acquisition processes have become more dynamic in Kazakhstan and have shown significant changes in terms of both quality and quantity over the past years. Our republic is now one of three leaders of the CIS on these indicators after Russia and Ukraine, but is dominated by foreign buyers in our market.
20000 15000
$ m 10000 ln.

Russia Kazakhstan

5000 0
19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08

Years

Diagram 1. Comparison of M&A transactions between Russia and Kazakhstan Source: UNCTAD cross-border M&A database.

The main incentive for the development of the market of mergers and acquisitions in Kazakhstan can be several factors. They are, of course, high economic growth in the CIS, a favorable investment climate, an availability of natural resources, interest to which is often actively demonstrated such growing countries as China and India. During 2003-2004, when there was the revival of M&A market, the most active in the acquisition of Kazakh assets started showing foreign investors. For example, Chinese and Indian investors, and then the American and Russian investors are very active in acquiring oil and gas companies and oil fields because of the bitter struggle for the world's energy reserves. Looking at the structure of M&A market now by country of origin of the participants, the dynamic activity of Kazakh investors can be noted. Local transactions between the Kazakh companies, and acquisitions of foreign assets by Kazakh investors made about 90% of the markets total value; out of these 78% is the share of local transactions. As we know, M & A market is a good indicator of economic development and reflects the major trends in it. It allows knowing at what stage of development is this or that industry and even the country's economy as a whole. The most popular
17

for M & A deals use the objects from the fastest growing economic sectors in which there are a large number of players. The main interest in mergers and acquisitions seen in industries such as oil and gas, mining, telecommunications, banking and finance. In general, considering Kazakhstan market M & A across industries, analysts say that oil and gas sector remains the most capacious.
Oil andGa s 2% 6 3% 6 Mining Industry Fina nce 6 % 2% 0 1% 2 Transportsa nd com unication m

Diagram 2. Volume of deals by sectors of economy in Kazakhstan in 2009 Source: FDI RESMI

The development of economy and market inevitably entailed improvements in the investment climate in Kazakhstan. Over the recent years, merger and acquisition (M&A) transactions multiplied. In Kazakhstan, the revival of mergers and acquisitions market started in 2002-2003. According to data of the company Ernst & Young, in 2004 the total amount of transactions aimed at the acquisition of Kazakh enterprises amounted to U.S. $700 million. In 2005, Kazakhstans market was estimated (according to Ernst & Young) at $9,5 bn. It is necessary to mention that these high indicators were achieved due to significant transactions in the oil and gas sector. For example, CNPC purchased PetroKazakhstan for $4.2 bn. which accounted for 47% of the total amount of transactions in 2005. According to the National Business magazine, the domestic M&A market grew to approximately $9.5 bln in 2006. Each transaction averaged $257 mln. Global financial crunch and subsequent decline of global economy growth had a significant impact on M&A market. Thus, in 2008 world M&A market volume reduced for 1/3 if compared with 2007. Kazakh M&A market faced with adverse difficulties as well. In 2008 there were registered 19 mergers and acquisitions (M&A) in Kazakhstan. An estimated volume of the market is $ 7 293 million. Based on this data we can say that in 2008 the companies activity in acquisition of assets decreased significantly as compared to 2007. For example, the total volume of M&A in 2007 was about 10 billion tenge with 49 transactions registered. It can be assumed that the decrease in M&A activities is related indirectly to the general negative trend in the world markets which, consequently, were reflected by the domestic market.
18

According to the results of the 1st half of 2008, the oil and gas sector made 35% of the total value of transactions, thus leading the M&A market. The next major sector in the M&A market is the mining industry with a significant share of 33%. By the number of transactions mining leads the market with the oil and gas sector following it. In general, these are two main sectors in the M&A market. High activity of investors in these sectors can be explained by their increasing attractiveness for investments on the background of growing prices on raw materials and minerals. M&A activity in Kazakhstan has slowed significantly in wake of the global economic crisis. According to local analysts, there is not much hope for significant improvement in the near future, as potential buyers struggle to raise funds and likely takeover targets battle for survival among tightening credit and falling price for oil. 2009 was painful for the most of the world and for Kazakh national resources companies in particularly. Meanwhile to consider it as an unsuccessful year should be incorrect. Crisis allowed to some leaders of the market not only to retain, but also to strengthen their positions by M&A transaction through acquisition of competitors. Due to rising oil prices and a corresponding weakening of the US dollar, value of gold as an alternative tool for investment remains high. As a general result, gold mining companies is of great interest for both local and foreign investors. Thus, the largest domestic producer of gold company Charaltyn has consolidated assets of Eurasia Gold Corp., exchanging 100% of its own shares for shares of Canadian companies. In August, Floodgate Holding B.V. bought the last 15% of state shares in joint venture Vasilyevskoye gold. " Kazakhstan remains an attractive target for foreign banks as its growth potential has yet to be fully realized, despite rapid development of the banking sector in the past years. And further increasing the draw is the ambition of the Kazakh government to become a regional financial hub and a trading center linking Europe and Asia. The financial sector retains its position as the most attractive segment both for domestic and foreign investments. M&A activity on Kazakhstans banking market, long dormant, picked up pace. Moreover, as Kazakh banks continue to struggle with insufficient liquidity to fund growth and repay their liabilities, more acquisitions are likely waiting ahead. In 2007, however, several record-breaking deals took place that jumpstarted a wave of activity in the sector and two of the countrys larger banks came under foreign control. The expansion of domestic financial institutes to the foreign markets became more intense in 2006. For example, Bank TuranAlem purchased a 33.98% stake in the Turkish Serkerbank T.A.S., which ranks 17th among 47 Turkish banks in terms of its size. As a result of this $256 mln. transaction, Bank TuranAlem can now offer its services in nine countries. It should be mentioned that the forecast regarding the possibility of Kazakh banks
19

consolidation came true. This is evidenced by Bank TuranAlems purchase of Temirbank, another domestic bank. The consolidation trends are seen in other fields, for example in the insurance sector, where acquisition transactions were recorded as well. Talking about the home market, foreign investors purchases of Texakabank and Bank Caspian can be considered as the largest transactions. Experts estimate that the transaction between Russian Sberbank and Texakabank ranges from $85-105m. As for Caspian Bank, the management announced selling a considerable share to Baring Vostok Capital Partners investment fund, which specializes in the management of direct investments. Taking into account the fact that both banks have well-organized networks of representative offices, these transactions indicate the growing interest towards bank retail services in Kazakhstan. This trend is also approved by foreign banks which traditionally worked with corporate clients and are now beginning to develop their retail services in the home market. If 5-7 years ago the major goal of our banks was to provide services to key corporate clients, now financial institutes are diversifying their activities by paying more attention to retail services, so that they reduce risk and acknowledge that this sector is quite promising. Bank TuranAlem sold 7.71% of its ordinary shares for 136.5m which became the next large transaction. A consortium, headed by the Sweden investment group East Capital, acted as buyer and Raiffeisen International Austrian bank acted as seller. In 2006, Bank Pozitif Ve Kalkinma Bankasi Anonim Sirketi (Turkey) purchased Demir Kazakhstan Bank for $24m from Bank Hapoalim (Israel). Foreign investors interest in large domestic banks shows that the domestic market of bank and finance services has entered the new level of development. Today the Kazakh finance institutions aim at the accumulation of own funds and development of their internal structures, taking international practice into consideration. The large investment banks of Russia also show their interest in Kazakhstans finance market. Russian broker company CIT Finance has begun its activity in Kazakhstan. Troika Dialogue, Renaissance Capital and Aton also announced their plans to enter the market. Among domestic banks, especially the second tens, constantly increasing competition. All higher positions are taking banks with access to international capital markets by issuing Eurobonds and the organization of syndicates. In the general trend of economic growth in Kazakhstan, as well as the state interest in diluting the monopoly of the three largest banks in Kazakhstan, banking sector has become more interesting for Russian investors. An example of this may be announced in late 2005 purchase by the Sberbank of Russia 100% of the shares Texakabank. This is the first transaction after the cancel of restrictions on participation of foreign ownership in financial institutions. In turn, domestic banks also carry out an aggressive expansion into neighboring markets. Last year, the BTA has bought a Georgian bank Silkroad, Volga-Kama Joint Stock Bank, the Armenian International Investment Bank, ATF Bank bought CJSC "Siberia".
20

Our banking market is highly developed and many foreign banks, especially those from Western Europe or North America, it is interesting to be here. As has been repeatedly noted, the 34 banks for Kazakhstan - is too much. The top three leaders controls more than 60% of banking system's assets. And the first six holds about 90% of the total market. Thus, the remaining 28 banks holds only 10%. So we can expect large mergers and acquisitions among Kazakh banks in the near future. ATF Bank acquired a controlling stake (not less than 50%) Valut-Transit Bank. Therefore, it is obvious that the financial institutions of Kazakhstan, particularly the second-tier banks, are the key participants in the Kazakhstans M&A market today. We can expect that the number of transactions in the financial sector will grow in the near future. At the same time, the government is becoming an important player on the M&A market as it assumes an increasingly active role in the countrys economy amid the crisis. The new customs union between Russia, Kazakhstan and Belarus could stimulate M&A activity in a variety of sectors, according to legal and political sources in the three countries. The harmonization and simplification of certain customs tariffs in the new union could lead to MSA in sectors including finance and consumer products, sources said. The new system is being introduced throughout 2010, sources said, with the potential for deeper economic integration in the future. The three governments are currently working on an agreement on investments within the union. The agreement would provide protection for investments and clear conditions for cross border M&A between the three countries, which could stimulate M&A in the region. In Kazakhstan, there are some very interesting areas where investors would like to come. Right now, a lot of companies want to have a presence in Kazakhstan. Russian banks are looking to Kazakhstan now. Currently, we do not see many large, sensational M&A transactions, such as the acquisition of the Kazakh ATF Bank by Unicredit Group or the acquisition for 2,3 billion USD of Mangistaumunaigaz, being the third oil company in Kazakhstan, by a consortium of KazMunaiGaz and Chinese CNPC Exploration and Development Company Ltd. From international practice can identify the following common goals and motives of M & A: strategic expansion, synergies, tax optimization, satisfaction of the needs of management in terms of compensation. In Kazakhstan, the most urgent are the first two objectives when making transactions in M & A. In small and medium business is more developed a strategy of diversification. In my opinion, aim of strategic expansion is pursued, when the Kazakh assets acquired by strategic investors. Based on an analysis of transactions in the last 2-3 years the most active on oil and gas market are the Chinese investors and Russian investors, who increasingly come with the offer to buy this or that oil company, oil reserves of which will be sufficient for a period not less than 15 years. This fact indicates the long-term nature of the intentions of the presence in the market.
21

Considering the local specificity of this market, we can note the non-disclosure of information of local companies. For a business owner who wants to sell its assets, there is great risk of information leakage. So this kind of transaction business owners trying to implement without the help of brokers or financial advisers, which is often problematic. Also, the problems include underdeveloped stock market, because companies are still not transparent in parts of the financial reporting and also in decision-making. The stock market would help to companies and potential investors determine the market value of the company. There is also a strong affiliation of companies with financial-industrial groups, which leads to a unwillingness to change the situation, the undeveloped culture of effective corporate management. As noted above, in market analysis, researchers use different methods of assessment, as a result of figures from different companies can vary. But the main problem of objective analysis of this area is its closeness. For research used only those transactions that were put officially made public. Basically, this applies only to large transactions, small and medium business is almost not present in annual reports, for example, Ernst & Young, respectively, the actual market volume is much higher than existing estimates of experts. It should be mentioned that M&A processes in Kazakhstan stand at the beginning of their development and therefore lack transparency. That is why it is impossible to accurately estimate transactions in retail, real estate, farming and other sectors. While transparency in financial and oil and gas sectors imply the obligatory disclosure of information to regulatory bodies, the absence of regulations binding on providing data regarding other sectors of the economy makes it impossible to evaluate the quality and number of transactions. Of course, the development of M&A in retail, real estate and farming does not fall behind other sectors, so it is quite easy to assume that these sectors have more transactions than financial or oil and gas sectors because the former are divided into a larger number of fragments. However, it is necessary to remember that the majority of the participants in these sectors are small and middle-sized businesses, which means smaller transactions. As a rule, these transactions are carried out without third party involvement, and the investment objects are private companies, which also impacts on the availability of data. Given the uncertain economic environment, the near future prospects for the Kazakh M&A market are mixed. The still ongoing global financial crisis and falling commodity prices cannot be not reflected in Kazakhstan. At the same time, however, the economic downturn has already significantly depressed asset prices in the countrys growing non-extractive sectors like commercial real estate, retail and services. As a sign of attractiveness of these relatively young segments of the economy, a number of regional private equity funds have set up shop in Kazakhstan to take advantage of opportunities in these sectors. It is highly probable that a number of M&A deals will be postponed or canceled altogether. This tendency will be reflected globally as well on CIS markets including Kazakhstan. At the same time, we can predict that the motivation of
22

market players will change: for investors it will be important to acquire assets at the lowest possible price; for sellers it will be crucial to raise funds in times of low liquidity and lack of finances. Therefore, the following conclusions can be made. The M&A market is marked by the lack of transparency and precise information, which can be explained by owners reluctance to disclose information. The finance, oil and gas and mining sectors are the exception. Consolidation was mainly seen in finance (as it dynamically develops) and oil and gas (due to stable and high prices for oil and increased production). The majority of direct foreign investments were aimed at oil and gas sector. 2.2 Merger of Bank CenterCredit and Kookmin Bank

In the history of mergers and acquisitions in Kazakhstan the biggest deals are undoubtedly the aquisition by European group Unicredit Kazakhstan's ATF Bank and the acquisition by the Korean bank Kookmin of 30% share of Bank Center Credit. One hundred percent of ATF Bank estimated at 2.275 billion U.S. dollars. Kookmin offered $ 530 mln. On the one hand, these transactions became evidence that some members of Kazakhstan's banking system did not cope with rapid growth, with its liabilities, carried away by borrowing abroad and often unreasonable retail lending. What finally pushed the sale of the business. On the other hand, the transactions were very successful for both parties. And for the country as a whole. Since on the Kazakh market come very strong players to which can be trusted money. In addition, the arrival of Unicredit and other foreign banks is a new impetus to competition between financial institutions in Kazakhstan. So, it means further improvement quality of service. In July 2007, just before the credit crisis hit Kazakhstans economy, Italian UniCredit Group acquired ATF Bank, Kazakhstans fourth-largest bank, in a deal worth $ 2.2 billion. Several months later, Korean Kookmin agreed to purchase a 30 percent stake in Bank CenterCredit, the sixth-largest lender, for $530 million with the intention to acquire a controlling stake of 50,1 % of BCC before 2011. Including such additional shares, the transaction is valued at $1.2 billion and is the largest overseas M&A transaction by a Korean bank to date. Kookmin Bank (KB), the largest commercial bank in Korea with a customer base of over 26 million retail customers, is a long-time client of the firm and has American Depositary Receipts listed on the New York Stock Exchange. Given the maturing nature of its domestic markets, management has expressed interest in expanding into emerging markets where it sees growth opportunities. As part of these efforts, in March 2008, Kookmin announced its intention to acquire a 50.1% stake in Bank CenterCredit in Kazakhstan (BCC; rated Ba3/Not Prime/E+/negative outlook). BCC is the fifth largest bank in Kazakhstan in terms of assets with USD7.8 billion at June 2009.
23

Table 3. Investment highlights Source: BCC 2010 years results

As for deposits, its market share was 10% at September 2009. Its franchise strength is in the retail and SME sectors, in which it operates through 20 full service and 182 retail branches. Retail and SME loans almost equally make up just over 80% of the loan portfolio. The transaction was a two-step process. First, Kookmin bought a 30.55% stake in BCC for USD634 million, after which it planned to increase its stake to 50.1% by February 2011. The acquisition is subject to approval of the Kazakh and Korean regulators. The Korean Financial Supervision Agency approved in May 16, 2008. The Kazakh Financial Supervision Agency approved in July 18, 2008. The deal closed on August 27, 2008. However, in September 2009, Kookmin announced a revised agreement. Under the new terms, Kookmin would acquire additional 9.6% shares in BCC for a total stake of 40.1% while International Finance Corp. (IFC) would take a 10% stake. On 25 February 2010, it was announced that Kookmin Bank of Korea (Kookmin) and International Finance Corporation (IFC) closed their equity transaction with JSC Bank CenterCredit (BCC). As was agreed in the legal documentation signed in September 2009, Kookmin increased its stake in BCC from 30% to 42% and IFC acquired 10% of BCC's total issued and paid shares. The structure of this transaction included the purchase of existing and newly issued shares of BCC by both Kookmin and IFC. As a result, BCC received strong capital support, amounting to KZT17.2 billion (equivalent of US$116 million) through the issuance of approximately 18 million common and 39 million preferred shares, convertible into common shares. It is intended that US$240 million of proceeds from the initial transaction will be deposited by the current shareholders with the bank to support its liquidity. Fitch Ratings has affirmed Bank CenterCredits ratings, including its Long-term Issuer Default Rating (IDR) of B with a Stable Outlook. The rating actions are as follows:
Long-term foreign currency IDR: affirmed at B; Outlook Stable Short-term foreign currency IDR: affirmed at B 24

Support Rating: affirmed at 5


Individual Rating: affirmed at D/E;

Senior unsecured debt: affirmed at B; Recovery Rating at RR4 The rating affirmation follows the 25 February announcement by South Koreas Kookmin Bank (Kookmin, A+/F1/ Stable/Individual B/C). While Fitch views the capital injection and the increased foreign shareholder participation as positive, the expectation that the transaction would be completed was already factored into the banks ratings. In the agencys view, moderate financial support for BCC from Kookmin is possible, in case of need, but Kookmins gradual approach to its acquisition of BCC, its apparent keenness to avoid consolidation of BCC at least in the near term and the limited integration between the two banks (notwithstanding substantial management oversight from Kookmin) mean that support cannot be relied upon in all circumstances. Moody's said that it views the proposed transaction as potentially positive for BCC's ratings, but that the announcement of acquisition has no immediate impact on BCC's ratings. Moody's current D-/Ba1/NP (negative outlook) ratings on BCC still capture the performance and repayment challenges faced by the bank over the immediate future. According to Moody's, the emergence of Kookmin Bank as the strategic shareholder in BCC is expected to lead to an improvement in BCC's currently stressed liquidity profile, while the involvement of Kookmin Bank in BCC's key corporate decisions, and assistance in risk management and asset-liability management is likely to have a positive impact on BCC's risk profile and franchise. In first quarter of 2009, Kookmin took a KRW100.4 billion impairment loss against BCC. Kookmin Banks (KB) share price dropped sharply on the news that KB will acquire Bank Center Credit (BCC), Kazakhstans sixth largest bank. Even though KB has lost hegemony in the banking industry since its merger with Housing & Commercial Bank, it has been most aggressive in the sector in expanding into overseas markets. KB believes overseas expansion is a good longterm growth strategy for the banking industry, even if the market is not friendly. They do not view the acquisition as negative, as KB can expect a 6% profit margin, given BCC generates KRW120bn in annual net profit. Even if KB spends W1tn, BPS would fall by W2,973 even in the worst case, and thus a loss of W2.3tn in market cap seems to be an excessive scenario. In addition, as Kazakhstan has strong growth potential over the mid and long-term, KB can get opportunities to enhance the enterprise value through restructuring or M&A. This acquisition will make KB the Kazakhstani banks second largest shareholder, and KB plans to become the largest shareholder by raising its stake to over 50.1% within 30 months after the acquisition. KB is forecast to gain a 6% profit margin from this investment, considering equity method gains. Kookmin will now have two out of six seats on BCCs BoD, while the IFC will have the right to nominate one member.
25

Diagram 3. Shareholder structure of Bank Center Credit Source: BCC 2010 year results

26

Conclusion Businesses now operate in global economy, where national borders mean a little. Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Mergers and acquisitions (M&As) are strategically planned transactions between two or more companies in which the target and the acquiring firm jointly create a new entity to gain competitive advantage in the market place. The motives and objectives for M&A activity are various. M & A are driven by many factors like strength of the currency and stock market, tax, regulatory changes, and level of interest rate. Competitive advantage could arise from synergies due to economies of scale, an increase in market share, better access to a customer base, ownership of distribution channels and access to knowledge and technology to mention just a few. In other words, mergers and acquisitions allow the purchase of assets that would be difficult, risky, timeconsuming or even impossible to obtain by other alternative business collaborations or organic growth. What we learned in this course work: a merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another. One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that is the reasoning behind M&A. The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones - synergy is the logic behind mergers and acquisitions. An M&A deal can be executed by means of a cash transaction, stock-for-stock transaction or a combination of both. A transaction with stock is not taxable, that is why it is the most popular way of execution of M&A transactions. Currently, the problem of mergers and acquisitions of transnational companies rather urgent. This is due to the following reasons. Firstly, from year to year is an increase in the number of mergers and acquisitions, since 2003, according to opinions of experts, started a new wave. This boom requires an analysis of the factors underlying it. Secondly, deal on mergers and acquisitions have a global impact on the global economy and the economies of individual countries. Consolidation of business makes it more powerful, less dependent to regulate and control not only by national governments but also by international economic organizations. Therefore, the actual consideration of trends and dynamics of mergers and acquisitions is necessary. Thirdly, the trend of mergers and acquisitions is rapidly spreading in Kazakhstan. Kazakhstani companies involved in international transactions, often as a target companies. But in recent years have also activated the processes of buying by Kazakhstani corporations foreign companies. The latest wave has affected our country. And, if earlier almost all transactions were transactions acquisitions by foreign and international companies
27

of Kazakhstan companies, now domestic corporations, implementing an strategy of entering for the global market, buying assets abroad and merge with international companies. The results of investigation shows that on the Kazakhstan stock market merger processes have a positive impact on the welfare of shareholders of the target companies and shareholder wealth of companies-acquirers. Since in the analyzed cases, all companies have a positive effect from the merger, the increase in stock prices can be explained by the synergy motive, which today remains the principal for Kazakh companies. The Kazakh M&A market is likely to show gradual rather than significant growth and its recovery will not take place earlier than 2012. As previously stated, the mining, oil & gas and banking industries are expected to drive a development of M&A activity. Speaking of predictions, we can note that an essential factor for the development of the market will be Kazakhstan's accession to the WTO. Companies which are not prepared to do business in a highly competitive environment will be forced to close or be absorbed by large foreign companies. Instability in world markets, directly or indirectly affected on domestic business. In this situation, some players are forced to take a certain amount of waiting, adjust its strategy, growth factors and overestimate the risks. The difficulties encountered to whip up the company to look for new drivers and levers development. Consolidation in the market, buying undervalued assets is real options for development. Meanwhile, investors of all kinds, in any case it is necessary to look directions for their investment. Firstly, it is the acquisition of real assets. Metallurgical, mining, oil business, be that as it may be, remains very attractive option of falling prices for the products of these industries still looks utopian. Fighting among corporations may only harden, strong companies to strengthen market positions will use any mechanism. In Kazakhstan industry certainty expect further consolidation and diversification. Major industrial giants have significant cash flow and capitalization, which will also acquire foreign assets, as per own and borrowed funds, so as to creditors it will be profitable investment. Therefore, we can conclude that as long as business entities exist and the economic factors are favorable, the trend of mergers and acquisitions will continue.

28

List of used literature: 1) Mergers and acquisitions from A to Z, Andrew J. Sherman,Milledge A. Hart, 2006 2) Mergers and acquisitions, Bryan Coyle, 2000 3) Mergers and acquisitions, William J.Carney, 2009 4) Mergers and acquisitions, A.P. Dash, 2010 5) Mergers and acquisitions basics: the key step of acquisitions, divestitures, and investments, Michael E.S. Frankel, 2005 6) Creating value from mergers and acquisitions: the challenges : an integrated and international perspective, P.S. Sudarsanam, 2003 7) Mergers and acquisitions and other restructuring activities, Donald DePamphilis, 2010 8) Structuring of mergers and acquisitions: a guide to create a shareholder value, Peter A. Hunt, 2009 9) Thomson reuters, www.thomsonreuters.com 10) KAZAKHSTAN International Business Magazine, 4, 2009 11) Exclusive Magazine, analytical review, 7, 2009 12) Ernst & Yang annual reports, 2009 13) World Investment Report, 2010 14) Bank CenterCredit 2010 year results 15) IFD RESMI, analysis M&A Kazakh style 16) www.gfmag.com 17) UNCTAD, www.unctad.com

29

Appendixes Appendix 1

Source: UNCTAD, www.unctad.com

Appendix 2

Source: UNCTAD, www.unctad.com

30

Appendix 3.

Source: Thomson Reuters, M&A Review, 1Q 2011

Appendix 4. Number of deals (2005-2010)


6 000 5 000

4 000

3 000

s l a D f o r e b m u N

2 000

1 000

0
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 Lo-$500m $500m-$1b $1b-$5b $5b-Hi

Source: Thomson Reuters, Trends in M&A and Capital Markets

31

Appendix 5

Source: Thomson Reuters, M&A Snapshot, November 2010

Appendix 6. 10 largest M&A transactions from 2006 up to 2009


Year Acquirer Acquired Industry Sum of deal (estimated)

1 2 3 4 5 6 7 8 9 1 0

2009 Mangistau Investments B.V. 2009 KazMunaiGaz 2007 UniCredit Group 2007 KazMunaiGaz 2008 Kazakhmys Plc. 2007 Kookmin Bank 2008 Kazakhmys Plc. 2006 KazMunaiGaz

MangistauMunaiGaz MangistauMunaiGaz

Oil gas

and $2,6 bln. $2,3 bln. $2,175 bln. $1,65 bln. $1,5 bln.

Oil and gas JSC ATF Bank Banking Rompertol Oil and gas Ekibastuz Urban Power Mining Plant1 and Maikuben West coal strip Bank Center Credit Banking ENRC Copper Nations Energy Co. Ltd

Oil gas 2007 Kazatomprom Westinghouse Nuclear reactor 2008 Alnair Capital JSC Kazkommertsbank Banking Holding

$1,2 bln. $1, 013 bln. and $955 mln. $540 mln. $436 mln.

32