PROJECT REPORT ON MERGER & ACQUISITION

IN

NOV-SARA INDIA PVT. LTD

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE BACHELORS DEGREE IN BUSINESS ADMINISTRATION
OF

H.N.B.G.U, SHRINAGAR

SUBMITTED TO:

SUBMITTED BY:

Vinod Hatwal
AbhishekSnehi(bba09a07) Akshay Gupta(bba09a51) Apoorv Jain(bba09a53) Sudhanshu Aswal(bba09a60)
1

ACKNOWLEDGEMENT
We owe a great many thanks to a great many people who helped and supported me during the writing of this book. My deepest thanks to Lecturer, Vinod Hatwal the Guide of the project for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed. I express my thanks to the Chairman of Institute Of Management Studies, Dehradun for extending his support. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

CERTIFICATE

I have the pleasure in certifying that Mr./Ms. Mr.Abhishek Snehi , Mr.Akshay Gupta, Mr.Apoorv Jain and Mr.Sudhanshy Aswal are bonafide students of Vth semester of the Bachelors Degree in Business Administration (Batch 2009-2012), of Institute of Management Studies, Dehradun . They have completed their project work entitled Mergers And Acquisitionsunder my guidance. I certify that this is their original effort & has not been copied from any other source. This project has also not been submitted in any other Institute / University for the purpose of award of any Degree. This project fulfils the requirement of the curriculum prescribed by this Institute for the said course. I recommend this project work for evaluation & consideration for the award of Degree to the student. Signature : Name of the Guide : Designation :. Date :

DECLARATION

We, hereby declare that the project work entitled reference to Mergers And Acquisitions is an authenticated work carried out by me at NOV SARA INDIA PVT. LTD, DEHRADUN. Under the guidance of Vinod Hatwal for the partial fulfillment of the award of the degree of BACHELORS OF BUSINESS ADMINISTRATION and this work has not been submitted for similar purpose anywhere else except to Institute Of Management Studies, Dehradun.

Date: Place:

TABLE OF CONTENT
Topic 1. Declaration 2. Acknowledge 3. Methodology 4. Company profile 5. Limitation 6. Executive summary 7. About NOV group-business summary 8. History of NOV Sara 9. Objective of study 10. SWOT analysis 11. Introduction to topic: Merger & Acquisition Distinction between mergers and acquisitions Business valuation Financing merger and acquisition 12. Motive behind merger and acquisition 13. Regulations for merger and acquisition 14. Process of merger and acquisition 15. Analysis 16. Conclusion 17. Findings & Recommendations 18. Bibliography

RESEARCH METHODOLOGY
Research methodology is a scientific and systematic way to solve research problems. A researcher has to design methodology, i.e., in addition to the knowledge of methods/ techniques, researcher has to apply the methodology as well. The methodology is differ from problem to problem. Research methodology deals with the research methods and takes into consideration the logic behind the methods, use. Following in order to complete project report on working capital management of NOV SARA INDIA PVT. LTD methodology has been adopted. There are two main types of sources of data collection i.e. Primary data Secondary data

PRIMARY DATA:
Primary data is one which is collected by the investigator for the purpose of a specific inquiry or study. Such data is original in character and is generated by surveys conducted by individuals or research institute. In order to collect such type of information, questionnaire i.e. to be constructed and information is collected from the respondents. The primary data can be collected through observation, experiments, questionnaire, interviewing, and case study method.

SECONDARY DATA:
When an investigator uses the data which has already been collected by others, such data is called secondary data. The secondary data can be obtained from journals, reports, government publications, etc. In order to carry out the project successfully, the secondary data is referred which is already available.

Sources of secondary data Book Website:

www.nov.com

www.wikipedia.com

COMPANY PROFILE
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Sara Services & Engineers Pvt. Ltd. was incorporated under the Companies Act. 1956 vide Certificate of Incorporation No. 10317 of 1979-80 dated 27th day of March 1980. The company is manufacturing a range of world class oilfield equipment such as BOP Control Systems. High Pressure Test Unit, Hydraulic Power Tongs, Wire line Winches, High Pressure Hammer Union, Swivel Joints, Chiksons etc. The company has represented world-renowned Oilfield Equipment manufacturers since 1980, which included Brandt, Bowen, Camco, Martin Decker, Koomey, Vetco and Varco. Sara's Oil Field Equipment manufacturing plants are situated in Dehradun, a city at the foot of the Himalayas. SARA started as a company in partnership by Mr. C. Kumar and Mr. V. K. Dhawan, both mechanical engineers, who had earlier worked with Larsen and Turbo. The company was established mainly to carry on the business of manufacture and sale of drilling equipments for mining and well industries globally and deal and act as representatives of oil field equipment for drilling /production and its allied services. It represented over 20 leading oil-field equipment manufacturers of the world and later diversified into manufacturing. Today SARA is one of the largest oil field equipment manufacturing companies in India with more than 750 employees and 15 items in its product line i.e.hydraulic casing, nitrogen pump, data acquisition and monitoring for blow-out preventer control system valves, high pressure test units, wire line winches, water blasters, swivel joints, hammer unions, flanges etc. The company is among the few, which has been awarded ISO-9001-9002 certification and American Petroleum institute (API) accreditation for its six products. Today company has started backward integration process by acquiring three forging plant having capability of forging casting & heat treatment with total area 3,50,000 Sq. ft. (including SARA and 940 employees. Also added is plating plant. SARA provides product support and after-sales services to its customers for its own products as well as equipments supplied by the collaborators and associates. It also undertakes allied services under contract agreement. It follows scientific management with wide use of computers in all spheres of its business. The plant 8

has the capability to design and manufacture various oil field drilling and production equipments. Sara has also opened its franchise outlets in Oman & Dubai, Indonesia. Besides the domestic market, SARA has established its franchisee outlets through out the world. SARA's products have reached almost all parts of the globe and are well accepted for its infallible quality. Driven by the growing requirement of the U.S. oil industry, SARA established STS Products, Inc. (STS) as a wholly-owned subsidiary in 2002 with its principal place of business in Houston, Texas. The primary objective of establishing STS is to provide efficient sales and services to Sara customers in the Western Hemisphere. STS holds stock of Sara products viz. Hammer Unions, Swivel Joints, Ring Joint Gaskets and Power Tongs in Houston. This inventory provides for more expeditious delivery of goods to the customers and helps avoid delays due to manufacturing lead time, transit time, and the like. Products sales are handled through distributors in Texas and by direct wholesales to resellers in the major markets, like Oklahoma and Louisiana. SARAs customer base includes companies like F.M.C, NOV, ONGC; Oil India & all major Oil Companies. For three years it had NOV as its partner.

Sara has three manufacturing locations in Dehradun, India Division-I Located at Mohabewala, Dehradun, manufacturing mainly the capital equipment viz BOP Accumulator Units, PLC Panels, Hydraulic Power Tongs, Power Units, and High Pressure Test Units. Division-II Located at Sara Industrial Estate, Selaqui, Dehradun, Manufacturing mainly the flow line products including Hammer Unions, Swivel Joints, Pup Joints, 9

Steel Hose assemblies, Ring Joint Gaskets API-6A Flanges, Tees & Crosses, API16A Flanges, Spools and Adapters, Choke & Kill Manifolds, Standpipe Manifolds etc. Division-III Located at Sara Industrial Estate, Selaqui, Dehradun, established to manufacture mainly the Valves and Chokes.

LIMITATIONS

Though limitations of our study can be clearly stated only after the completion of the project, but currently the limitations of our projects are: The study is conducted in limited constraint of time. It has no relevance with any other organizations. 10

Lack of proper internal financial information. Lack of resources. Limited availability of data.

EXECUTIVE SUMMARY

It is clear that you cannot stay in the top league if you only grow internally. You cannot catch up just by internal growth. If you want to stay in the top league, you must combine. Daniel Vasella, Chief Executive Officer, Novartis, July 2002

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Corporate acquisitions are frequently undertaken with an emphasis on getting the deal done. The integration issues that might arise afterwards are often ignored or misunderstood. Yet they are crucial to making the acquisition worthwhile. Creating shareholder value through corporate acquisitions means negotiating a deal that includes a favorable price and favorable terms, but it also requires a successful integration program. Poor integration is repeatedly cited as one of the primary reasons that corporate acquisitions fail to meet the purchasers expectations. Post-acquisition issues generally involve one of the following: Employees of the acquired business Post-acquisition operating results Business systems integration Unanticipated liabilities Customer retention Financial integration Culture differences

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ABOUT NOV GROUP- BUSINESS SUMMARY

The company was founded in 1862. It was formerly known as NationalOil well, Inc. and changed its name to National Oil well Varco, Inc. in 2005. The company is based in Houston, Texas. National Oil well Varco, Inc. engages in the design, construction, manufacture, and sale of systems, components, and products to the oil and gas industry worldwide. It operates in three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. As the world's leading supplier of equipment to the oil and gas industry, National-Oil well Varco's name can be found on 90% of the offshore drilling rigs (and a similar proportion of land rigs) across the globe. NOV competes indirectly with larger oilfield services players like Schlumberger, Transocean, and Halliburton, but it is the smaller companies that have large rig part segments, like Smith International, Cameron Corporation, and FMC Technologies that are NOV's main competition. NOV is known for its active acquisitions strategy; in the third quarter of 2007 alone, the company made four acquisitions totaling $50 million. Its recent acquisition of Grant Pride co has increased the company's market cap to around $34 billion.[2], creating the third-largest oilfield services company by market cap.

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HISTORY OF NOV SARA

1978: Established as SARA SERVICES AND ENGINEERS PRIVATE LTD with net capital of rs.25000.

1981-84:

Entered

in

technical

collaborations

agreements

for

manufacturing in India with. 1982: Plant set up at present location in dehradun -called div I. 2002: Established STS Houston for distribution in U.S. 2006: Second plant established at Dehradun - called division -II 2007: MERGED INTO NATIONAL OILWELL VARCO. Nov Sara is a joint Venture which is 76% owned by NOV (Asia), a wholly owned subsidiary of NOV. The remaining 24% of NOV Sara is owned by local management. The NOV Sara joint venture was formed July 31, 2007. NOV Sara manufactures and sells oilfield related equipment and parts to customer located in India and abroad , largely to US customers , both third party and related companies.

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PRODUCTS (PRE-ACQUISITION)
Key existing products
BOP Control system (for land rigs)

Hydraulic tongs

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Swivel joints

API Ring Joint Gaskets Hammer unions Wellhead Accessories

New upcoming products (post acquisition)

Surface control systems Sub Sea controls in hull equipments Engineering services Type B valves, chockes and manifolds 5/10 M PHS Hydraulic Power units Drilling controls

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OBJECTIVE OF THE STUDY

The objective of this management thesis is to study the phenomenon of acquisition of Sara Services And Engineers Private Ltd by National Oilwell Varco.

The significance of HR Systems as an integration mechanism and Employees of the acquired business

To study financial performance of the combined entity and establishing a financial baseline and integrate financial targets.

To understand the consequences of Culture differences in both the companies.

To study the Post-acquisition operating results. Business systems integration. Unanticipated liabilities. Customer retention focused both on retaining key customers, developing competitive defense plans and growing the market.

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SWOT ANALYSIS

STRENGTH
Technical know how. Increase in product line after merger. NOV brand and technology.

WEAKNESSES
Switching over experienced employees. Shortage of space for inbound logistic system. Less attractive payroll.

OPPORTUNITIES
New franchise agreement with in different countries after merger. More product lines are coming. Increase in market share. Increase in customer base world wide.

THREATS

International market. Pricing strategy of the competitor. Maintaining the standards and norms of NOV.

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MERGER & ACQUISITION

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Next time you flip open the newspapers business section, odds are good that at least one headline will announce some kind of M&A transaction. Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or to splitoff or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of whether you should cheer or weep when a company you own buys another company - or is bought by one. You will also be aware of the tax consequences for companies and for investors. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these

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potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.

Varieties of Mergers
From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging:

1.

Horizontal merger
Two companies that are in direct competition and share the same

product lines and markets.

2.

Vertical merger
A customer and company or a supplier and company. Think of

a cone supplier merging with an ice cream maker.

Market-extension merger Two companies that sell the same products in different markets. Product-extension merger Two companies selling different but related products in the same market.

3.

Conglomerate merger
Two companies that have no common business areas.

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There are two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors:

1. Purchase Mergers As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company. We will discuss this further in part four of this tutorial.

2. Consolidation Mergers
With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

Acquisitions and Takeovers

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An acquisition may be defined as an act of acquiring effective control by one company over assets or management of another company without any combination of companies. Thus, in an acquisition two or more companies may remain independent, separate legal entities, but there may be a change in control of the companies. When an acquisition is 'forced' or 'unwilling', it is called a takeover. In an unwilling acquisition, the management of 'target' company would oppose a move of being taken over. But, when managements of acquiring and target companies mutually and willingly agree for the takeover, it is called acquisition or friendly takeover. Under the Monopolies and Restrictive Practices Act, takeover meant acquisition of not less than 25 percent of the voting power in a company. While in the Companies Act (Section 372), a company's investment in the shares of another company in excess of 10 percent of the subscribed capital can result in takeovers. An acquisition or takeover does not necessarily entail full legal control. A company can also have effective control over another company by holding a minority ownership. An acquisition, also known as a takeover, is the buying of one company (the target) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.

Distinction between Mergers and Acquisitions

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With the focus on acquisitions, it is important to distinguish between mergers and acquisitions. In a merger, two companies come together and create a new entity. In an acquisition, one company buys another one and manages it consistent with the acquirers needs. Further implications for people management issues are types of mergers and acquisitions. In general there are mergers of equals, which includes the merger between Arcelor and Mittal Steel forming Arcelor-Mittal; Citicorp and Travellers forming Citigroup; and between Ciba and Sandoz forming Novartis. There are also mergers between unequals such as between Chase and J.P. Morgan creating JPMorgan- Chase. Similarly there are two major types of acquisitions: those involving acquisition and integration such as those typically made by Cicso Systems, Info edge(India) Pvt Ltd; and those involving acquisition and separation such as between Unilever and Bestfoods (Schuler and Jackson,2001). Acknowledging these types of mergers and acquisitions is critical in describing and acting upon the unique people management issues each has. An acquisition that involves integration has greater staffing implications than one that involves separation. A combining of companies is a major change. Mergers and acquisitions represent the end of the continuum of options companies have in combining with each other. It is the mergers and acquisitions that are the combinations that have the greatest implications for size of investment, control, integration requirements, pains of separation, and people management issues. Most mergers and acquisitions deals fail to accomplish many of the strategic objectives so optimistically projected in the initial announcements. Academicians and practitioners have often described the acquisition process as a unifying process, normally depicted as a sequence of discrete steps.

Business valuation
The five most common ways to valuate a business are: 23

asset valuation, historical earnings valuation, future maintainable earnings valuation, relative valuation (comparable company & comparable transactions), discounted cash flow (DCF) valuation

Professionals who valuate businesses generally do not use just one of these methods but a combination of some of them, as well as possibly others that are not mentioned above, in order to obtain a more accurate value. The information in the balance sheet or income statement is obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an Audit. Accurate business valuation is one of the most important aspects of M&A as valuations like these will have a major impact on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest's sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size.

Financing Merger & Acquisition

Mergers are generally differentiated from acquisitions partly by the way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist: 24

Cash:
Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders.

Stock:
Payment in the acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter.

Which method of financing to choose?

There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically. The form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the real value of the bid (without considering an eventual earn out). The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers. Third, with a share deal the buyers capital structure might be affected and the control of the new co modified. If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders. The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results. For example, in a pure cash deal (financed from the companys current account), liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA). However, economic dilution must prevail towards accounting dilution 25

when making the choice. The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options:

- Cash on hand: it consumes financial slack (excess cash or unused debt

capacity) and may decrease debt rating. There are no major transaction costs.

- Issue of debt: it consumes financial slack, may decrease debt rating and
increase cost of debt. Transaction costs include underwriting or closing costs of 1% to 3% of the face value.

- Issue of stock: it increases financial slack, may improve debt rating and
reduce cost of debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder meeting and registration. If the buyer pays with stock, the financing possibilities are:

- Issue of stock (same effects and transaction costs as described above). - Shares in treasury: it increases financial slack (if they dont have to be
repurchased on the market), may improve debt rating and reduce cost of debt. Transaction costs include brokerage fees if shares are repurchased in the market otherwise there are no major costs. In general, stock will create financial flexibility. Transaction costs must also be considered but tend to have a greater impact on the payment decision for larger transactions. Finally, paying cash or with shares is a way to signal value to the other party, e.g.: buyers tend to offer stock when they believe their shares are overvalued and cash when undervalued.
[4]

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Motives behind M&A

The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial performance. The following motives are considered to improve financial performance:

Economy of scale:
This refers to the fact that the combined company can often

reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. 27

Economy of scope:
This refers to the efficiencies primarily associated with demand-

side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products.

Increased revenue or market share:

This assumes that the buyer will be absorbing a major

competitor and thus increase its market power (by capturing increased market share) to set prices.

Cross-selling:
For example, a bank buying a stock broker could then sell its

banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.

Synergy:
For example, managerial economies such as the increased

opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts.

Taxation:
A profitable company can buy a loss maker to use the target's loss

as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company. Tax minimization strategies include purchasing 28

assets of a non-performing company and reducing current tax liability under the Tanner-White PLLC Troubled Asset Recovery Plan.

Geographical or other diversification:

This is designed to smooth the earnings results of a company,

which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.

Resource transfer:
Resource transfer resources are unevenly distributed across

firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources.

Vertical integration:
Vertical integration occurs when upstream and downstream

firms merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalize an externality problem. A common example is of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power; each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. By merging the vertically integrated firm can collect one deadweight loss by setting the downstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable.

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Advantages and Disadvantages of Mergers

The advantages are:
A merger does not require cash. A merger may be accomplished tax-free for both parties. A merger allows the shareholders of smaller entities to own a smaller A merger of a privately held company into a publicly held company

piece of a larger pie, increasing their overall net worth. allows the target company shareholders to receive a public company's stock, despite the liquidity restrictions of SEC Rule 144a. A merger allows the acquirer to avoid many of the costly and timeconsuming aspects of asset purchases, such as the assignment of leases and bulk-sales notifications.

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Of considerable importance when there are minority stockholders is

the fact that upon obtaining the required number of votes in support of the merger, the transaction becomes effective and dissenting shareholders are obliged to go along.

The disadvantages are:

Diseconomies of scale if business become too large, which leads to higher unit costs. Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration. May need to make some workers redundant, effect on especially at

management levels - this

may have an

motivation.

May be a conflict of objectives between different businesses, meaning decisions are more difficult to make and causing disruption in the running of the business.

A Generalized Model of Acquisition - Action Plans

Working out Broad policy regarding Acquisition/ Merger Programme Defining Objectives of Acquisition/ Merger Approval of the Board of Directors of the Objectives Formulating the Programme Search of a partner for Acquisition/ Merger Identifying, Selecting & Rating the companies for the final choice Formulating the strategy of approach Undertaking Negotiations Reaching the Preliminary Agreement Considering Legal Aspects of Merger 31

Working out final agreement Approval by the board of director Announcement of the Acquisition/ Merger Integrating the Operations& Organizations of the two enterprises Five levels of Integration Strategic Integration Tactical Integration Operational Integration Cultural Integration

Communication for integration Post-Merger Integration

Effects on management
A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition more than double the turnover experienced in non-merged firms. If the businesses of the acquired and acquiring companies overlap, then such turnover is to be expected; in other words, there can only be one CEO, CFO, etc. at a time.

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Brand Considerations
Mergers and acquisitions often create brand problems, beginning with what to call the company after the transaction and going down into detail about what to do about overlapping and competing product brands. Decisions about what brand equity to write off are not inconsequential. And, given the ability for the right brand choices to drive preference and earn a price premium, the future success of a merger or acquisition depends on making wise brand choices. Brand decision-makers essentially can choose from four different approaches to dealing with naming issues, each with specific pros and cons. Keep one name and discontinue the other. The strongest legacy brand with the best prospects for the future lives on. In the merger of United Airlines and Continental Airlines, the United brand will continue forward, while Continental is retired.

Keep one name and demote the other:

The strongest name becomes the company name

and the weaker one is demoted to a divisional brand or product brand. An example is Caterpillar Inc. keeping the Bucyrus International name. 33

Keep both names and use them together:

Some companies try to please everyone and keep the

value of both brands by using them together. This can create an unwieldy name, as in the case of PricewaterhouseCoopers, which has since changed its brand name to "PwC".

Discard both legacy names and adopt a totally new one:

The classic example is the merger of Bell Atlantic with

GTE, which became Verizon Communications. Not every merger with a new name is successful. By consolidating into YRC Worldwide, the company lost the considerable value of both Yellow Freight and Roadway Corp.

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REGULATIONS FOR MERGER AND ACQUISITION

Mergers and acquisitions are regulated under various laws in India. The objective of the laws is to make these deals transparent and protect the interest of all shareholders. They are regulated through the provisions of:-

The Companies Act, 1956

The Act lays down the legal procedures for mergers or acquisitions:

Permission for merger:

Two or more companies can amalgamate only when the

amalgamation is permitted under their memorandum of association. Also, the acquiring company should have the permission in its object clause to carry on the business of the acquired company. In the absence of these provisions in the memorandum of association, it is necessary to seek the permission of the shareholders, board of directors and the Company Law Board before affecting the merger. 35

Information to the stock exchange:

The acquiring and the acquired companies should inform

the stock exchanges (where they are listed) about the merger.

Approval of board of directors:

The board of directors of the individual companies should

approve the draft proposal for amalgamation and authorize the managements of the companies to further pursue the proposal.

Application in the High Court:

An application for approving the draft amalgamation

proposal duly approved by the board of directors of the individual companies should be made to the High Court.

Shareholders' and creditors' meetings:

The individual companies should hold separate

meetings

of

their

shareholders

and creditors

for

approving

the

amalgamation scheme. At least, 75 percent of shareholders and creditors in separate meeting, voting in person or by proxy, must accord their approval to the scheme.

Sanction by the High Court:

After the approval of the shareholders and

creditors, on the petitions of the companies, the High Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing will be published in two newspapers, and also, the regional director of the Company Law Board will be intimated. 36

Filing of the Court order:

After the Court order, its certified true copies will be

filed with the Registrar of Companies.

Transfer of assets and liabilities:

The assets and liabilities of the acquired company will be

transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date.

Payment by cash or securities:

As per the proposal, the acquiring company will exchange

shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.

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The Acquisition Process

What seems and is generally depicted as a linear process (Figure) is, however, complex and spiral: it is difficult to identify when each phase ends and the next starts. After the deal is closed, the success of it depends on integration which is a dynamic process of adjustment in a context of uncertainty and incomplete information. These interrelationships can be appreciated only taking into account the actors involved at different organizational levels and integration mechanisms put in use according to different purposes and different time frames, as depicted in Figure.

Procedure for evaluating the decision

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The three important steps involved in the analysis of mergers and acquisitions are:-

Planning: Acquisition will require the analysis of industry-specific and firm-specific information. The acquiring firm should review its objective of acquisition in the context of its strengths and weaknesses and corporate goals. It will need industry data on market growth, nature of competition, ease of entry, capital and labour intensity, degree of regulation, etc. This will help in indicating the product-market strategies that are appropriate for the company. It will also help the firm in identifying the business units that should be dropped or added. On the other hand, the target firm will need information about quality of management, market share and size, capital structure, profitability, production and marketing capabilities, etc.

Search and Screening: Search focuses on how and where to look for suitable candidates for acquisition. Screening process short-lists a few candidates from many available and obtains detailed information about each of them.

Financial Evaluation:Financial Evaluation of a merger is needed to determine the earnings and cash flows, areas of risk, the maximum price payable to the target company and the best way to finance the merger. In a competitive market situation, the current market value is the correct and fair value of the share of the target firm. The target firm will not accept any offer below the current market value of its share. The target firm may, in fact, expect the offer price to be more than the current market value of its share since it may expect that merger benefits will accrue to the acquiring firm. 39

A merger is said to be at a premium when the offer price is higher than the target firm's pre-merger market value. The acquiring firm may have to pay premium as an incentive to target firm's shareholders to induce them to sell their shares so that it (acquiring firm) is able to obtain the control of the target firm.

PROCESS OF MERGER AND ACQUISITION

Mergers and acquisitions are parts of corporate strategies that deal with buying / selling or combining of business entities, which in turn, help a company to grow quickly. However, merger and acquisition process is quite a complex process that consists of a few steps. Before going for any merger and acquisition, both the companies need to consider a few points and also need to go through some distinct steps. The merger and acquisition process is also a big point of concern for the companies involved in the deal, as the process could be full of risk and uncertainty. However, prior effective planning and research could make the process easy and simple.

Steps of Mergers and Acquisition Process:

The process of merger and acquisition has the following steps:

Market Valuation:
Before you go for any merger and acquisition, it is of utmost important that you must know the present market value of the organization as well as its estimated future financial performance. The information about organization, its history, products/services, facilities and ownerships are reviewed. Sales organization and marketing approaches are also taken into consideration.

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Exit Planning:
The decision to sell business largely depends upon the future plan of the organization what does it target to achieve and how is it going to handle the wealth etc. Various issues like estate planning, continuing business involvement, debt resolution etc. as well as tax issues and business issues are considered before making exit planning. The structure of the deal largely depends upon the available options. The form of compensation (such as cash, secured notes, stock, convertible bonds, royalties, future earnings share, consulting agreements, or buy back opportunities etc.) also plays a major role here in determining the exit planning.

Structured Marketing Process:

This is merger and acquisition process involves marketing of the business entity. While doing the marketing, selling price is never divulged to the potential buyers. Serious buyers are also identified and then encouraged during the process. Following are the features of this phase.

Seller agrees on the disseminated materials in advance. Buyer also needs to sign a Non-Disclosure agreement. Seller also presents Memorandum and Profiles, which factually showcases the business. Database of prospective buyers are searched. Assessment and screening of buyers are done. Special focuses are given on he personal needs of the seller during structuring of deals. Final letter of intent is developed after a phase of negotiation.

Letter of Intent:
Both, buyer and seller take the letter of intent to their respective attorneys to find out whether there is any scope of further negotiation left or not. Issues like price and terms, deciding on due diligence period, deal structure, 41

purchase price adjustments, earn out provisions liability obligations, ISRA and ERISA issues, Non-solicitation agreement, Breakup fees and no shop provisions, pre closing tax liabilities, product liability issues, post closing insurance policies, representations and warranties, and indemnification issues etc. are negotiated in the Letter of Intent. After reviewing, a Definitive Purchase Agreement is prepared.

Buyer Due Diligence:

This is the phase in the merger and acquisition process where seller makes its business process open for the buyer, so that it can make an in-depth investigation on the business as well as its attorneys, bankers, accountants, tad advisors etc.

Definitive Purchase Agreement:

Finally Definitive Purchase Agreement are made, which states the transaction details including regulatory approvals, financing sources and other conditions of sale.

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Integration tactic

The level of integration needed between the companies also decides the post merger integration strategy. There are many cases where the acquired company keep its original identity and more or less continues to work independently. Suffice to say that these situations are easier to handle. Having spoken about the need for a clear post merger integration plan, let us now examine the main ingredients.

1. Strategy and Structure

Strategy and structure is probably, conceptually, the easiest and the most critical art that has a bearing on the integration. However, if the acquisition does not have total management buy- in, it may be a problem area too. Some of the key elements of this are leadership consolidation, vision and business philosophy alignment, and cultural alignment, consolidation of business reporting and organization structure definition.

2. Market integration
Market integration is a more involved exercise and needs to consider issues covering a broad spectrum- brand integration (visual and messaging), sales force integration and retraining, product and service integration, channel integration, and supplier integration are key. If done well, 43

this is one area that could lead to tremendous synergies and even not so obvious cost benefits.

3. People integration
People integration, the most sensitive area, comprises compensation rationalization, creation and deployment of a communication plan, devising employee retention mechanisms as well as feedback processes.

4. Operational integration
Last, we have delivery or operational integration. This would include process and system alignment, technology integration, consolidation of support functions and workplace branding.

While chalking out a post merger integration plan, it is a good idea to identify a team comprising members from both organizations to anchor the initiative. Needless to say, the top management should visibly support the initiative, and it is useful but not compulsory to have external help.

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Merger &Acquisition Integration Process Model

The following steps are oriented toward measurable, early wins that align the new organization with the corporate strategy.

Due Diligence Phase- In this phase of integration, the company desiring to

merge evaluates potential merge companies based on their ability to meet a predefined set of a business and financial requirements.

Preliminary Planning- The goal of preplanning is to prepare the integration

team to begin working immediately after the merger is official. The planning in this stage should be proportional to the perceived risk of the merger.

The five steps that make up the preplanning stage are:

1) Analyze historical data Information collected by the merging company in the due diligence phase and financial and legal reports (feasibility studies, legal audits) should be strategies should be devised to control risks.

2) Define management approach

Balancing schedules during the transition period requires ground rules to ensure that senior and middle are involved when necessary. Transition teams- senior and mid- level exercise that will be most affected by the plan is successfully executed.

3) Define strategic metrics

Strategic metrics are quantifiable measurements that determine the overall performance of the integration effort.

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4) Validate area of investigation

After determining culture, political, or regulatory issues those impct integration activities, the transition team must further specify the timing for the integration, risks involved, and the expected pay-off.

5) Create a draft integration plan

The draft integration plan is a culmination of all the planning that has taken place up to the deal announcement including strategic metrics, the communication plan and the governance process.

Detailed planning- Once the merger closes, the next major process
involves refining the integration draft into a plan that is supported by management and those affected by chance. A detailed investigation should be conducted to define all areas of the integration plan. Senior management should review the plan to validate results and finalize it before setting it in motion.

Integration

implementation-

During

implementation,

senior

management must focus on clear communication in reporting implementation performance, and reporting must be tied to the metrics that were defined for the engagement. The engagement team has to be aware of the environment that has formed in the new organization so that alienation does not occur with those responsible for integration execution. Because of complexity and risk factors, many organizations are turning to outside consultancies with direct merger experience to help them successfully overcome the daunting statistics surrounding M&As. This M&A solution enables corporations to see where others have failed and ensure that a better result is achieved.

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Cultural conflict in Mergers and Acquisitions

The impact of cultural in merger and acquisitions may be even greater in crossborder takeovers than in Domestic acquisitions. For example:

Differences in national cultures may hinder post-acquisition Integration.

Differences in the way information is processed (differences in language and communication) may make cross border acquisitions more risky than domestic ones.

According to an analysis which is most applicable to firms that rely heavily on employees intellectual capital. In merger and acquisition, key professionals may be more valuable than products themselves, so retaining such staff is critical. There is the possibility not only that leading figures will defect to rival organizations, but also that they may start a rival organization. The challenge for management is to convince these key professionals to stay, during and after the merger, and to share knowledge with their new colleagues. These professionals resisted knowledge transfer when they perceived that the merging firms differed in the quality of their external image and the extent of their knowledge base.

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ANALYSIS
An entrepreneur may grow its business either by internal expansion or by external expansion. In the case of internal expansion, a firm grows gradually over time in the normal course of the business, through acquisition of new assets, replacement of the technologically obsolete equipments and the establishment of new lines of products. But in external expansion, a firm acquires a running business and grows overnight through corporate combinations. These combinations are in the form of mergers, acquisitions, amalgamations and takeovers and have now become important features of corporate restructuring. They have been playing an important role in the external growth of a number of leading companies the world over. They have become popular because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalization of businesses. In the wake of economic reforms, Indian industries have also started restructuring their operations around their core business activities through acquisition and takeovers because of their increasing exposure to competition both domestically and internationally. Mergers and acquisitions are strategic decisions taken for maximization of a company's growth by enhancing its production and marketing operations. They are being used in a wide array of fields such as information technology, telecommunications, and business process outsourcing as well as in traditional businesses in order to gain strength, expand the customer base, cut competition or enter into a new market or product segment. In the past 27 years, there have been three major waves of surging cross-border M&A transactions. The first wave was seen in the late 1980s; the second big cross-border in the latter half of the 1990s and the third in 2007 when globally M&A deals worth $4.48 trillion were announced, as against $3.61 48

trillion in 2006- a growth of 24 percent. From 467 deals in 2005, deals in 2007 reached 1,081(Grant Thornton, 2008). During these periods, the global economy experienced relatively high economic growth and there was widespread industrial restructuring, according to the United Nations Conference on Trade and Development. Much of the increased cross-border M&A activity this year has involved companies from the US and Europe who are in a major consolidation process. Such deals are also becoming more common in developing countries, which are beginning to liberalize their trade and investment markets. The current wave of cross-border M&A deals is not only being driven predominantly by transatlantic activity, as were the two previous periods of frenzied buying in the late 1980s and 1990s. This increase is more geographically distributed and includes China, India and Latin America (JM Morgan Stanley, 2005). According to the 2008 BCG 100 new global challengers report, BCG 100 top companies from rapidly developing economies (RDEs) such as India, China, Russia, Mexico and Brazil, are changing the world and challenging the dominance of established multinational players across the world. In2006 they completed 72 outbound acquisitions, up from 21 in 2000. The average size of these transactions grew from $156 million in 2001 to $981 million in 2006. Of the 100 companies on BCGs list, 41 are from China, 20 from India, and 13 from Brazil, with the rest coming from other RDEs. 14 countries in all are home to the BCG 100 (Business Line, 2008). As globalization continued, and multinational companies sought to increase market share, eliminate competitors, or gain control of suppliers, we witnessed the third wave of rising Merger &Acquisitions One of the strategies for growth which companies in the top 100 of the fortune 500 list 2007, such as Wal-Mart Stores, Exxon Mobil, Royal Dutch Shell, ING Group, Proctor and Gamble, AT & T, Barclays, Vodafone and Mittal Steel have adopted, is by merging and acquiring

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CONCLUSION
One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals.

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FINDINGS
The procedure of calculation of inventory is old and outdated. The company follows centralized way of decision making. The company still using old and outdated softwares for their financial management. The merger will cut costs or boost revenue.

RECOMMENDATIONS
NOV SARA PVT LTD can also diversify its business through its investments and it can enter into engineering products, it should expand product line. The company should opt for decentralized form of management in decision making. The company should introduce new softwares like ERP, SAP, ORACLE, etc. The manager should not underestimate the coordination problems associated with a merger. Issue around control should be carefully managed. The acquirer should carefully design appropriate incentives for the acquired organizations management team. Its important for the acquirer to deeply understand the target company.

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Bibliography
Web site: http://en.wikipedia.org/wiki/Mergers_and_acq uisitions

http://en.wikipedia.org/wiki/integration http://www.nov.com

Book: -

Financial Management, Khan Jain.

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