MERGER AND ACQUISITION

Merger
A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create strong competitive advantage.

Company A

Company B

Newly Formed Company

Deal Summary Y-0n-Y

Volume

Volume(US $ billion) 2010 2011 2009 2010 2011

2009

Inbound

74

91

132

3.9

26.9

Outbound

82

198

132

1.4

22.5

10.4

Cross border

156

289

264

31

37

Domestic

174

373

342

6.7

18.3

Total M&A

330

662

606

12

50

42

PE

206

253

347

3.4

6.2

7.7

QIP

54

56

8.6

6.2

0.9

Grand Total

590

971

961

24

62.2

50.9

The year witnessed a sustained momentum in M&As as well as Private Equity(PE) activity despite the ongoing euro zone crisis, rising inflation, low business confidence and interest rates, weakening rupee and volatile stock markets. The year 2011 recorded 961 deals amounting to $51 billion compared to 971 deals amounting to $62 billion in 2010 (both M&A and PE). As events unfolded in the euro zone, there was significant decline in deal values in both M&As and PE in the second half of the year.

Acquirer
1. 2. 3. 4. Vedanta Plc British Petroleum Vodafone Group Plc Mundra Port SEZ Ltd (Adani Group)

Target
Cairns India Reliance Industries Vodafone Essar Abbot Point Port

Sector
Oil & Gas Oil & Gas Telecom Shipping& ports

% stake
59.00% 30.00% N.A 100.00%

$ billion

5.

GVK Power & Infrastructure

Hancock group-coal mines and a port and rail project

Mining

79.00%

6. 7.

iGATE Corporation Apax Partners Aditya Birla Group

Patni computers Columbian Chemicals

IT and ITES Plastic & Chemicals Automotive 26.00%

8.

Hero Investment Ltd

Hero Honda Motors Ltd from Honda motors

26.00

9.

Nippon Life Insurance

Reliance Life Insurance

Banking& Financial Services

26.00%

10.

Fortis Healthcare

Fortis Healthcare International

Pharma, Healthcare & Biotech

100.00%

The top three M&A (Vedanta, BP, Vodafone) deals remained in the news throughout the year due to regulatory hurdles . All these deals over over $ 1 billion each. There has been an increasing trend of stake sale by promoters of Indian companies to strategic acquirers . The trend may also continue in the future as the need of large scale operation and international expansion grows. Foreign companies are still finding Indian businesses highly attractive and hence there was a sharp jump in inbound deals complimented with huge premium over market valuations.

Sector

Volume

Value ( $ billion)

Oil & Gas

14

16530

39.00%

Telecom

11

5769

14.00%

IT & Ites

117

3251

8.00%

Pharma, Healthcare & Biotech

57

2053

5.00%

Shipping & Ports

1957

5.00%

PE

206

253

347

QIP

54

56

Grand Total

590

971

961

As a sector , Oil & Gas dominated M&A activity with big deals like Reliance and British petroleum , Cairn and Vedanta. The telecom sector came second to Oil & Gas . However, the value of Indi-focused M&A deals just managed to total $39 billion in the first nine months of this year- a significant 31% decline compared t the same period last year. This was primarily a result of high interest rates, inflation, policy paralysis pertaining to foreign direct investment and poor returns from financial markets. However, with the expected rate cuts, the situation might improve I the near future and can help attract foreign companies to the county in turn acceleration M&A activity

sector

2007
14755

2008
7181

2009
2772

2010
15132

2011
5831

Telecom

Metals & Ores

1264

21

430

4100

603

Pharma, Healthcare & Biotech

1925

5908

1646

6565

2315

Banking & Financial Services

3714

4113

741

4234

1775

Power & Energy

4489

3596

863

3038

1478

Hospitality

362

12

164

958

58

Due to lack of policy reforms, telecom sector saw a huge retreat in M&As this year. Same was the case with metals and Ores sector due to regulatory issuers over mining . On the other hand sectors like Oil and Gas, IT and ITES saw a big leap in terms of M&A. Ongoing carnage in financial markets also had a negative impact and hence. As a result the BFSI sector did not witness as much M&A activity as it did in 2010. However, the situation might improve in the next year as there seems to be a desperate effort from authorities to introduce a series of policy reforms in the telecom sector

Hero Honda is a joint Venture, set up in 1984 between Indias Hero Group and Japans Honda Motor Co. It has been the world largest two wheeler Company for nine years in succession with a customer base of more than 30 million. It has 48% share of the domestic two wheeler market; in fact, Every second motorcycle sold in the country rolls out from one of the Hero Hondas Factories.

June,1984 Hero Honda was formed

Honda agreed to provide technical knowledge to HHM and setting up manufacturing facilities.

Both have equal stake.

2011
Total incomes Total Expense Sales(nos.) Sales turnover 19,245.03 16,784.16 19,669.29

2010
13,093.56 16,096.14 4600130

2009
10,607.36 12,537.80 3722000

2008
8,982.43 10,517.22 3337142

2007
8,726.92 11,731.89 3336756

15,860.51

12,356.88

10,331.80

9,899.96

Profit After Tax Market Capitalization Earning per Share

1,927.90

2,231.83 38827

1,281.76 21390

967.88 13869

857.89 13753

96.55 Current Ratio CAGR (%) of Sales 12.5 Debt Equity Ratio

111.77

64.19

48.47

42.96

0.24

0.58

0.46

0.48

0.57

11.9

12.4

14.7

18.5

0.50

0.02

0.02

0.04

0.07

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0

Market cap sales turnover Total Assets

The increasing cost of royalty and technological (R&T).

The growing presence and market of Honda Motorcycle & Scooter India (HMSI) a 100% subsidiary of Honda. Relaxed government norms.

Enough knowledge of Indian market for Honda

India would want to go on its own because 9.3 million two-wheeler market will grow to 16 million by 2015. A minority stake in Hero Honda also yield limited profits for Honda compared with a fully consolidated 100%.

It will not have R & D support from Honda.

Launch of new products and its acceptance.

Competition will become more fierce.

Honda will become more aggressive.

Company is considering a brand strategy focusing on popular bike brands, rather than the corporate brand.
Pushing the product brands for the time being, but building the corporate brand in the background for latest products. Exploiting overseas market. The company can now establish distribution networks across the globe.

2010-2011

2009-2010

2008-2009

2007--2008

2006-2007

EPS
PAT PE

85.02
392640 26.29

67.56
294870 28.80

52.85
228063 18.42

46.22
228063 28.62

36.29
163875 27.59

Current Ratio
Quick Ratio Total Assets Total Liabilities

0.06
6.89 277,352.61 277,352.60

0.03
7.14 222,458.56 222,458.56

0.04
5.23 183,270.78 183,270.77

0.04
4.89 133,176.60 133,176.60

0.04
4.07 91,235.61 91,235.61

450000 400000 350000 300000 250000 200000 150000 100000 50000 0 HDFC ICICI AXIS Bank

Market Cap

Net Profit
Total Assets