International

Acquisitions
BIBLIOGRAPHY & REFERENCES:

Financial Management -IM

Pandey

Cross-Border mergers and Acquisitions

- S Shiva
Ramu

Global Acquisitions - Stan Lees

Effective International Joint venture

Management -Ronald Charles
Wolf
 BIBLIOGRAPHY & REFERENCES:

 Business World -10th Sep , 2007

 Business Today -23rd Sep , 2007
 Economic Times -1st Feb , 2007
 http://india.gov.in/business/growing_business/m
 Indian Brand Equity Foundation’s Journal
on “India Inc.”
Growth and Expansion

 Internal Expansion

 External Expansion or Business

Combination
External Expansion

 Mergers
 Acquisitions

 Takeovers

 Joint Ventures

 Strategic Alliances
 Merger
A merger is a combination of two or more companies into
one company. It may be in the form of one or more
companies being merged into an existing company or
a new company may be formed to merge two or more
existing companies.

The Income Tax Act, 1961 of India uses the term

‘Amalgamation” for merger. [Section 2(1A)]
 The Property

 The Liabilities

 Shareholders
 Forms of Merger
 Absorption
A B A

 Consolidation

A B C
 Acquisition
Acquisition may be defined as an act of acquiring
effective control over the assets or management
of a company by another company without any
combination of businesses or companies.

Acquisition (Friendly Takeover).

Takeover (Unwilling or Forced takeover)

Under the MRTP Act, takeover means acquisition of

not less than 25% of the voting power in a
company.
Takeover
Vs.
Acquisition
 Benefits & Economics
 Accelerated Growth
Expanding its existing markets
Entering in new markets
 Enhanced Profitability
Economies of Scale
Operating Economies
Synergy
 Diversification of risk
 Reduction in Tax Liability

 Financial Benefits
Eliminating the Financial Constraint
Deploying surplus cash
Enhancing debt capacity
Lowering the financing costs

 Increased Market Power

DIVERSITY OF ACQUISITION
MOTIVES:
 Rationale for
Acquisitions
Acquiring Company Acquirer Company
 Diversification to achieve  Major stockholders
economic protection wishing to retire
 Need for further
 Adding new products
financing
faster  Means of survival
 Acquiring management  Prospect of technological
or technical personnel or marketing change
 Acquiring profitable  Attractive purchase or
operations exchange offer
Types of Acquisitions
 Horizontal Acquisition
Book Book
Publisher Publisher
A B
 Vertical Acquisition
TV TV
Manufacturing Marketing
company company

(Forward and Backward Acquisition)

 Concentric or Congeneric
Acquisition
Machine Industrial
Tool Conveyor
Mfr. System

 Conglomerate Acquisition
Cement Electronics
Company Company
 Value Creation through
Acquisitions
Acquisition will create an Economic Advantage when the
combined present value of the merged firm is greater than
the sum of their individual present values as separate firms.

P Q PQ
Value: Vp Vq Vpq

 EA will occur if, Vpq > ( Vp + Vq )

 And EA = Vpq – ( Vp + Vq )
 Cost of Acquisition
= Price (Say cash paid) - Vq

Net Economic Advantage is positive if Economic Advantage

exceeds the cost of Acquisition.

 Therefore, NEA = EA - Cost of Acquisition

or NEA = [ Vpq - ( Vp + Vq ) ]
- ( Cash Paid - Vq
)
 CORPORATE STRATEGY AND
ACQUISITION PROCESS:
1. Acquisition Search:
 Candidates with Net Operating Losses.
 Candidates that offer Synergetic Prospects.
 Candidates with Turnaround Prospects.
 Candidates with low Price – Earnings
Multiples.
 Candidates that must avoid Improper Profit
Accumulations
2. Approaching the Target:

 Passive Strategy:

 Active Strategy
3. Valuation:

 Discounted Cash Flow Method

 Comparable Companies Method

 Book Value Method

 Market Value Method

4. Negotiation:

5. Due Diligence:
Why do Acquisitions
Fail?
 Excessive Premium
 Faulty Evaluation

 Lack of Research

 Failure to manage Post-Merger

Integration
 RESISTANCE TO AN
ACQUISITION:
 FAILURE TO UNDERSTAND TARGET FIRM'S
PROBLEM

 FUTURE PLANS NOT IN THE INTEREST OF TARGET

FIRM'S SHAREHOLDERS

 TENDER PRICE OR EXCHANGE RATIO TOO LOW

 ACQUIRING FIRM'S PLAN FOR NEW MANAGEMENT

 Fighting Strategies in
Acquisitions
Different strategies adopted by target firm’s management are:
 White knight (more suitable acquirer)
 Poison pills (special rights to holders)
 Greenmail (repurchase at premium)
 Leveraged Recapitalization (large debt-financed dividend )
 Golden Parachutes (sizable compensation to key personals)
 Shark Repellents (anti takeover amendments)
 MECHANISMS OF ACQUISITION:

1. STOCK PURCHASE

2. STATUTORY STOCK MERGER

3. ASSET PURCHASE
STOCK PURCHASE
STATUTORY STOCK MERGER
ASSET PURCHASE
 Statutory procedures
involved in Acquisition
1. Appoint a registered Merchant Banker (MB),
2. PA is required to be made through the said MB,
 What is public announcement?
 Disclosures required
 Objective of PA
 Timing of PA
3. Documents are to be filed with SEBI,
 Hard and soft copy of PA
 Draft letter of offer within 14 days from the date of PA
 Filing fee of Rs.50,000 per letter of offer
 Due diligence certificate as well as registration details as per SEBI
circular no. RMB (G-1) series dated June 26, 1997.
4. SEBI approves the draft letter of offer

5. Letter of offer send to the shareholders.

 Within 45 days from the date of PA
 Offer remains open for 30 days.
Global Footprints
REGULATIONS FOR ACQUISITIONS:
• The Companies Act, 1956
o Permission for Acquisition
o Information to the stock exchange
o Approval of board of directors
o Application in the High Court
o Shareholders' and creditors' meetings
o Sanction by the High Court
o Filing of the Court order
o Transfer of assets and liabilities
o Payment by cash or securities
REGULATIONS FOR ACQUISITIONS:
 The Foreign Exchange Management Act, 1999
199

 The Income Tax Act, 1961

 Securities and Exchange Board of India

(SEBI)

 The Competition Act, 2002

 Tata-Corus

Tata Steel, post-acquisition, emerged as world’s 5th largest

Steel company from its current rank of 56.

SHARE PRICE:

 Tata Steel UK, which has been formed to make the Acquisition,
offered 608 pence per share, valuing US $12.1 Billion. It is the
second largest in the global steel industry
 Deal values Corus at an enterprise value of US $ 13.6 billion,
which amounts 9 times its EBITDA for 2005-06.
OPERATIONAL DETAILS:

 Tata Steel’s Chairman Ratan Tata will be

Chairman of the new board of Corus to be
formed after the acquisition

 The enlarged company will have a crude

steel production of 27 million tones in 2007
FUNDS FOR ACQUISITION
 FINANCIAL
PERFORMANCE:
 6.4 times improvement in turnover (from
Rs 4,198 crore to Rs 31,155 crore)

 5.2 times growth in adjusted net profits (to

Rs 6,360 crore from Rs 1,222 crore)

#first quarter of the current fiscal year

 Corus recorded a turnover of £2,405
million from its continuing businesses
which would have translated into Rs
20,298 crore at the exchange rate of
Rs 84.4 to a pound sterling as on
June 2007.
 FUTURE AHEAD:

The acquisition by Tata Steel with

Corus will lead to a saving of $400
million to the company after three
years. The Tata-Corus will provide
$130 million savings this year till
March 2008. After three years, the
integration will lead to $400 million
yearly savings to the company
Thank You