Mergers

Merger is a financial tool that is used for enhancing long-term profitability by

expanding their operations. Mergers occur when the merging companies have their
mutual consent as different from acquisitions, which can take the form of a
hostile takeover.

The business laws in US vary across states and hence the companies have limited
options to protect themselves from hostile takeovers. One way a company can
protect itself from hostile takeovers is by planning shareholders rights, which is
alternatively known as � poison pill. If we trace back to history, it is observed
that very few mergers have actually added to the share value of the acquiring
company. Corporate mergers may promote monopolistic practices by reducing costs,
taxes etc.

Such activities may go against public welfare. Hence mergers are regulated d
supervised by the government, for instance, in US any merger required\s the prior
approval of the Federal Trade Commission and the Department of Justice. In US
regulation son mergers began with the Sherman Act in 1890.

Mergers may be horizontal, vertical, conglomerate or congeneric, depending or the

nature of the merging companies.
Acquisitions
Acquisitions or takeovers occur between the bidding and the target company. There
may be either hostile or friendly takeovers. Reverse takeover occurs when the
target firm is larger than the bidding firm. In the course of acquisitions the
bidder may purchase the share or the assets of the target company.
History of Mergers and Acquisitions

Tracing back to history, merger and acquisitions have evolved in five stages and
each of these are discussed here. As seen from past experience mergers and
acquisitions are triggered by economic factors. The macroeconomic environment,
which includes the growth in GDP, interest rates and monetary policies play a key
role in designing the process of mergers or acquisitions between companies or
organizations.
First Wave Mergers
The first wave mergers commenced from 1897 to 1904. During this phase merger
occurred between companies, which enjoyed monopoly over their lines of production
like railroads, electricity etc. the first wave mergers that occurred during the
aforesaid time period were mostly horizontal mergers that took place between heavy
manufacturing industries.
End Of 1st Wave Merger
Majority of the mergers that were conceived during the 1st phase ended in failure
since they could not achieve the desired efficiency. The failure was fuelled by
the slowdown of the economy in 1903 followed by the stock market crash of 1904.
The legal framework was not supportive either. The Supreme Court passed the
mandate that the anticompetitive mergers could be halted using the Sherman Act.
Second Wave Mergers
The second wave mergers that took place from 1916 to 1929 focused on the mergers
between oligopolies, rather than monopolies as in the previous phase. The economic
boom that followed the post world war I gave rise to these mergers. Technological
developments like the development of railroads and transportation by motor
vehicles provided the necessary infrastructure for such mergers or acquisitions to
take place. The government policy encouraged firms to work in unison. This policy
was implemented in the 1920s.

The 2nd wave mergers that took place were mainly horizontal or conglomerate in
nature. Te industries that went for merger during this phase were producers of
primary metals, food products, petroleum products, transportation equipments and
chemicals. The investments banks played a pivotal role in facilitating the mergers
and acquisitions.
End Of 2nd Wave Mergers
The 2nd wave mergers ended with the stock market crash in 1929 and the great
depression. The tax relief that was provided inspired mergers in the 1940s.
Third Wave Mergers
The mergers that took place during this period (1965-69) were mainly conglomerate
mergers. Mergers were inspired by high stock prices, interest rates and strict
enforcement of antitrust laws. The bidder firms in the 3rd wave merger were
smaller than the Target Firm. Mergers were financed from equities; the investment
banks no longer played an important role.
End Of The 3rd Wave Merger
The 3rd wave merger ended with the plan of the Attorney General to split
conglomerates in 1968. It was also due to the poor performance of the
conglomerates. Some mergers in the 1970s have set precedence. The most prominent
ones were the INCO-ESB merger; United Technologies and OTIS Elevator Merger are
the merger between Colt Industries and Garlock Industries.
Fourth Wave Merger
The 4th wave merger that started from 1981 and ended by 1989 was characterized by
acquisition targets that wren much larger in size as compared to the 3rd wave
mergers. Mergers took place between the oil and gas industries, pharmaceutical
industries, banking and airline industries. Foreign takeovers became common with
most of them being hostile takeovers. The 4th Wave mergers ended with anti
takeover laws, Financial Institutions Reform and the Gulf War.
Fifth Wave Merger
The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom
and deregulation. The 5th Wave Merger took place mainly in the banking and
telecommunications industries. They were mostly equity financed rather than debt
financed. The mergers were driven long term rather than short term profit motives.
The 5th Wave Merger ended with the burst in the stock market bubble.

Hence we may conclude that the evolution of mergers and acquisitions has been long
drawn. Many economic factors have contributed its development. There are several
other factors that have impeded their growth. As long as economic units of
production exist mergers and acquisitions would continue for an ever-expanding
economy.
Merger and Acquisition Trends

Trend essentially refers to the observed long-term movement in a time series data.
Trend estimates are seasonally adjusted through an averaging process. Merger and
acquisition trends provide an idea about the market movements.

Merger and acquisition trends are seen to affect an economy's product market,
money market, and labor market. Global markets are also considerably influenced by
the merger and acquisition trends.
Global Merger and Acquisition Trends for 2006 and 2007
2007 and 2006 were marked by a spate of mergers and acquisitions all over the
globe in both developing and developed countries. The general trend was that,
there was a decline in the number of public sector undertakings along with a hike
in the number of private sector enterprises. This was due to the fact that many
public sector organizations worldwide were either acquired by large private sector
enterprises or merged with them.

The explanation to this merger and acquisition trend as observed in 2006 and 2007
lay in the robust growth recorded by the Private Equity Funds. The other factors
propelling this trend were the emphasis on short term earnings growth and the
strict regulatory structure of public sector enterprises.

This merger and acquisition trend towards increased privatization of public sector
holdings was observed in Europe, Brazil, North America, and China. Europe in that
period hosted a strong investment market, which catered to the public to private
sector transition of companies.

For China mergers and acquisitions from public to private business enterprises got
government approval in 2006.

More on Private Equity Driven International Merger and Acquisition Trends

Private equity transactions had been the buzzword for the world economy in 2007
and 2006. The real estate sector and the energy sector witnessed much of this type
of activity. Private equity firms were working overnight for augmenting
proprietary deal flows.

China was an unique case in point. There the powerful trend towards mergers and
acquisitions involving private equity dealings comprised a lot of policy and
regional diversity. A great amount of equity capital flowed into China from US,
Japan, Israel, and Europe as retail sector investments. This was primarily aimed
at tapping China's heightened domestic consumer demand. Focus shifted to the
northern and western regions of China as costs escalated for the commercial hubs
alongside the eastern seacoast.

In the US, private equity funds succeeded in raising more than $200 billion in
this period for international merger and acquisition dealings.

As these types of funds usually possessed a time frame of 3 to 5 years for putting
the new invested capital to work, they were expected by the analysts to power
heightened merger and acquisition activities across major global markets for the
coming decade.

For Europe the general prediction was that of a high transactional demand related
to private equity. Analysts observed that certain European markets were
characterized by different financial advantages and tax structures. Western
European nations possessed well oiled legal machinery and conducive investment
climates. In particular Britain exhibited a strong market for public to private
investments.

After the accession of nations like Poland, Czech Republic and Hungary into the
EU, a section of European funds for private equity were seen to be abstaining from
applying the 'emerging market discount' for investment in those nations.

Equity investment in Brazil turned attractive with the program called Novo
Mercado. Brazilian pension funds turned out to be a prime investment force. Their
bankruptcy code got a revision. The elected government was supportive of a free
market structure.

In North America domestic dealings in M&A executed by private equity investors of

USA displayed a robust international component. The observed trend was that a
majority of the funds wanted to secure offshore partners for distribution,
contract manufacturing or joint ventures.

This kind of cross-border transactions entailed a careful planning for tax

obligations arising out of fund repatriation.
More on Merger and Acquisition Trends
Global leveraged buyouts figures for 2006 were above US$ 800 billion. This was
more than twice the comparable figure for 2005. It constituted around 20 % of US
international mergers and acquisitions. However, even then it was not a
significant component of the world equity and debt market.

In 2006 North America saw vigorous
half of the world activity in that
activity in the arena of leveraged
increase. France, Netherlands, and
markets in 2006.
leveraged buyout activities, which amounted to
field. Europe witnessed a fairly heightened
buyouts; while Asia had a relatively slow
Germany were the biggest European buyout

No doubt that private equity has indeed become a major component of twenty-first
century's capital market.
Benefits of Mergers and Acquisitions

Merger refers to the process of combination of two companies, whereby a new

company is formed. An acquisition refers to the process whereby a company simply
purchases another company. In this case there is no new company being formed.
Benefits of mergers and acquisitions are quite a handful.

Mergers and acquisitions generally succeed in generating cost efficiency through

the implementation of economies of scale. It may also lead to tax gains and can
even lead to a revenue enhancement through market share gain.

Birds Eye View of the Benefits Accruing from Mergers and Acquisitions

The principal benefits from mergers and acquisitions can be listed as increased
value generation, increase in cost efficiency and increase in market share.

Mergers and acquisitions often lead to an increased value generation for the
company. It is expected that the shareholder value of a firm after mergers or
acquisitions would be greater than the sum of the shareholder values of the parent
companies.

An increase in cost efficiency is effected through the procedure of mergers and

acquisitions. This is because mergers and acquisitions lead to economies of scale.
This in turn promotes cost efficiency. As the parent firms amalgamate to form a
bigger new firm the scale of operations of the new firm increases. As output
production rises there are chances that the cost per unit of production will come
down.

An increase in market share is one of the plausible benefits of mergers and

acquisitions. In case a financially strong company acquires a relatively
distressed one, the resultant organization can experience a substantial increase
in market share. The new firm is usually more cost-efficient and competitive as
compared to its financially weak parent organization.

It can be noted that mergers and acquisitions prove to be useful in the following
situations:

Firstly, when a business firm wishes to make its presence felt in a new market.
Secondly, when a business organization wants to avail some administrative
benefits. Thirdly, when a business firm is in the process of introduction of new
products. New products are developed by the R&D wing of a company.
Employee Benefits under Mergers and Acquisitions in US
The 'Employee Retirement Income Security Act' was enacted in 1974. It is also
known as ERISA. Since then programs for employee benefit have been a major
component of the balance and income statements of US business organizations.

Current law promulgations have attached supreme importance to the presence of post
retirement pension schemes and welfare benefit schemes as a part of corporate
obligation. As a result employee benefit programs are affecting the viability of
mergers and acquisitions in the USA.

Expenses accruing due to employee benefit programs may not be fully reflected in a
company's balance sheet. Some employee benefit obligations may arise out of a
change in the corporate structure of a firm. Retirement income schemes and benefit
plans may vary from company to company. Companies going for mergers and
acquisitions strive to iron out the internal differences to maintain a specified
level of employee satisfaction.

Mergers and Acquisitions in India

The process of mergers and acquisitions has gained substantial importance in

today's corporate world. This process is extensively used for restructuring the
business organizations. In India, the concept of mergers and acquisitions was
initiated by the government bodies. Some well known financial organizations also
took the necessary initiatives to restructure the corporate sector of India by
adopting the mergers and acquisitions policies. The Indian economic reform since
1991 has opened up a whole lot of challenges both in the domestic and
international spheres. The increased competition in the global market has prompted
the Indian companies to go for mergers and acquisitions as an important strategic
choice. The trends of mergers and acquisitions in India have changed over the
years. The immediate effects of the mergers and acquisitions have also been
diverse across the various sectors of the Indian economy.
Mergers and Acquisitions Across Indian Sectors
Among the different Indian sectors that have resorted to mergers and acquisitions
in recent times, telecom, finance, FMCG, construction materials, automobile
industry and steel industry are worth mentioning. With the increasing number of
Indian companies opting for mergers and acquisitions, India is now one of the
leading nations in the world in terms of mergers and acquisitions.

The merger and acquisition business deals in India amounted to $40 billion during
the initial 2 months in the year 2007. The total estimated value of mergers and
acquisitions in India for 2007 was greater than $100 billion. It is twice the
amount of mergers and acquisitions in 2006.
Mergers and Acquisitions in India: the Latest Trends
Till recent past, the incidence of Indian entrepreneurs acquiring foreign
enterprises was not so common. The situation has undergone a sea change in the
last couple of years. Acquisition of foreign companies by the Indian businesses
has been the latest trend in the Indian corporate sector.

There are different factors that played their parts in facilitating the mergers
and acquisitions in India. Favorable government policies, buoyancy in economy,
additional liquidity in the corporate sector, and dynamic attitudes of the Indian
entrepreneurs are the key factors behind the changing trends of mergers and
acquisitions in India.

The Indian IT and ITES sectors have already proved their potential in the global
market. The other Indian sectors are also following the same trend. The increased
participation of the Indian companies in the global corporate sector has further
facilitated the merger and acquisition activities in India.
Major Mergers and Acquisitions in India
Recently the Indian companies have undertaken some important acquisitions. Some of
those are as follows:

Hindalco acquired Canada based Novelis. The deal involved transaction of $5,982
million. Tata Steel acquired Corus Group plc. The acquisition deal amounted to
$12,000 million. Dr. Reddy's Labs acquired Betapharm through a deal worth of $597
million. Ranbaxy Labs acquired Terapia SA. The deal amounted to $324 million.
Suzlon Energy acquired Hansen Group through a deal of $565 million. The
acquisition of Daewoo Electronics Corp. by Videocon involved transaction of $729
million. HPCL acquired Kenya Petroleum Refinery Ltd.. The deal amounted to $500
million. VSNL acquired Teleglobe through a deal of $239 million.

When it comes to mergers and acquisitions deals in India , the total number was
287 from the month of January to May in 2007. It has involved monetary transaction
of US $47.37 billion. Out of these 287 merger and acquisition deals, there have
been 102 cross country deals with a total valuation of US $28.19 billion.

Certified Mergers and Acquisitions

There are a number of certified mergers and acquisitions advisory programs

available at the present time. With the help of these programs, a lot of
commercial entities are getting involved in merger and acquisition activities.
These programs are offered by numerous merger and acquisition consultants and
agencies. Some of them are also conducting educational programs and seminars for
the purpose of educating financial professionals about the nuances of certified
mergers and acquisitions and growing the knowledge base of the merger and
acquisition professionals.

One of the most important certified merger and acquisition advisory programs is
the Certified Valuation Manager Program offered by the American Academy of
Financial Management (AAFM). The American Academy of Financial Management is also
hosting a number of Certified Valuation Manager Training Conferences throughout
the year.

The certified mergers and acquisitions agencies help commercial enterprises or

business corporations in acquiring or taking over other companies and also in
significant issues related to mergers and acquisitions. These agencies also help
business entities regarding management buyouts (MBOs), finding acquisition lookup,
sources of equity and debt financing, as well as valuation of businesses.

In this modern-day world, the power of globalization, market liberalization and

technological advancement has contributed towards the formation of a increasingly
competitive and active commercial world, where mergers and acquisitions are more
and more utilized for achieving optimization of firm value and competitive
benefits.

In the United States, the Alliance of Merger & Acquisition Advisors (AM&AA) is a
principal global institution, which offers specialized services related to the
academic and resource requirements in the profession of merger and acquisition
advisory services. It has more than 500 members and has attained the position of a
market leader in the educational domain of mergers and acquisitions. The members
are merger and acquisition professionals offering transactional support and
mediator services. The majority of the members have qualifications like MBA, CPA,
or JD. The merger and acquisition training program offered by the Alliance of
Merger & Acquisition Advisors is known as CM&AA certification.

With the help of certified merger and acquisition advisory services, the clients
can enjoy instant accessibility to:

# A large number of certified business purchasers, which include multinational or

transnational corporations who are seeking to buy profitable companies
# A platform of the merger and acquisition professionals, sources of funding,
transaction makers, intermediaries and tax professionals
# Knowledgeable principals
# Advices on pricing and valuation
# Forward-looking transaction formation, which will lead to value addition

The certified mergers and acquisition advisory services can be broadly categorized
into the following types:

# Business Valuation Services

# Funding Services (Acquisition financing, recapitalizations, financial
reconstruction)
# Asset Disposal Services
# Acquisition Lookup
# Management Buyouts (MBOs)
# Certified Equipment and Machinery Estimation

The Sarbanes-Oxley Act plays a major role in the mergers and acquisitions that
take place in the United States. It was introduced in the year 2002 and is also
called as the Public Company Accounting Reform and Investor Protection Act of
2002. One of the principal objectives behind the promulgation of this act is to
maintain transparency in the mergers and acquisitions transactions and protect the
investors.
Course Content of a Certified Merger and Acquisition Advisory Program
The course content of a Certified Merger and Acquisition Advisory Program deals
with various regulatory and legal features of mergers and acquisitions and usually
includes the following:

# Forms of transactions/deals
# The procedure of merger and acquisition
# Principal matters that should be taken into account
# Negotiation of contract
# Warranties and representations
# Consideration or compensations
# Regulatory matters- acquisition performed by a public company
# Enquiries and searches
# Due diligence
# Due diligence- post acquisition
# Title to international properties
# Cross-border deals
# Coordinating/organizing cross-border transactions
# Taking over distressed firms
# Analyzing the parties to merger or acquisition
# Valuation of the probable acquisition
# Designing the funding for acquisition
# Regulatory and legal matters associated with acquisition of a public company
# Code for mergers and acquisitions
# Comprehending the ideas of merger and acquisition code
# Formation of a takeover deal
# Blueprinting the documentation
# The areas of difficulty that should be on the lookout
# Workshops on mergers and acquisitions and case studies

Horizontal Mergers

About Horizontal Mergers

Horizontal mergers are those mergers where the companies manufacturing similar
kinds of commodities or running similar type of businesses merge with each other.
The principal objective behind this type of mergers is to achieve economies of
scale in the production procedure through carrying off duplication of
installations, services and functions, widening the line of products, decrease in
working capital and fixed assets investment, getting rid of competition,
minimizing the advertising expenses, enhancing the market capability and to get
more dominance on the market.

Nevertheless, the horizontal mergers do not have the capacity to ensure the market
about the product and steady or uninterrupted raw material supply. Horizontal
mergers can sometimes result in monopoly and absorption of economic power in the
hands of a small number of commercial entities.

According to strategic management and microeconomics, the expression horizontal

merger delineates a form of proprietorship and control. It is a plan, which is
utilized by a corporation or commercial enterprise for marketing a form of
commodity or service in a large number of markets. In the context of marketing,
horizontal merger is more prevalent in comparison to horizontal merger in the
context of production or manufacturing.
Horizontal Integration
Sometimes, horizontal merger is also called as horizontal integration. It is
totally opposite in nature to vertical merger or vertical integration.
Horizontal Monopoly
A monopoly formed by horizontal merger is known as a horizontal monopoly.
Normally, a monopoly is formed by both vertical and horizontal mergers. Horizontal
merger is that condition where a company is involved in taking over or acquiring
another company in similar form of trade. In this way, a competitor is done away
with and a wider market and higher economies of scale are accomplished.

In the process of horizontal merger, the downstream purchasers and upstream

suppliers are also controlled and as a result of this, production expenses can be
decreased.
Horizontal Expansion
An expression which is intimately connected to horizontal merger is horizontal
expansion. This refers to the expansion or growth of a company in a sector that is
presently functioning. The aim behind a horizontal expansion is to grow its market
share for a specific commodity or service.
Examples of Horizontal Mergers
Following are the important examples of horizontal mergers:

# The formation of Brook Bond Lipton India Ltd. through the merger of Lipton India
and Brook Bond
# The merger of Bank of Mathura with ICICI (Industrial Credit and Investment
Corporation of India) Bank
# The merger of BSES (Bombay Suburban Electric Supply) Ltd. with Orissa Power
Supply Company
# The merger of ACC (erstwhile Associated Cement Companies Ltd.) with Damodar
Cement
Advantages of Horizontal Merger:
Horizontal merger provides the following advantages to the companies which are
merged:
1) Economies of scope
The notion of economies of scope resembles that of economies of scale. Economies
of scale principally denote effectiveness related to alterations in the supply
side, for example, growing or reducing production scale of an individual form of
commodity. On the other hand, economies of scope denote effectiveness principally
related to alterations in the demand side, for example growing or reducing the
range of marketing and supply of various forms of products. Economies of scope are
one of the principal causes for marketing plans like product lining, product
bundling, as well as family branding.
2) Economies of scale
Economies of scale refer to the cost benefits received by a company as the result
of a horizontal merger. The merged company is able to have bigger production
volume in comparison to the companies operating separately. Therefore, the merged
company can derive the benefits of economies of scale. The maximum use of plant
facilities can be done by the merged company, which will lead to a decrease in the
average expenses of the production.

The important benefits of economies of scale are the following:

# Synergy
# Growth or expansion
# Risk diversification
# Diminution in tax liability
# Greater market capability and lesser competition
# Financial synergy (Improved creditworthiness, enhancement of borrowing power,
decrease in the cost of capital, growth of value per share and price earning
ratio, capital raising, smaller flotation expenses)
# Motivation for the managers

For attaining economies of scale, there are two methods and they are the
following:

# Increased fixed cost and static marginal cost

# No or small fixed cost and decreasing marginal cost

One example of economies of scale is that if a company increases its production

twofold, then the entire expense of inputs goes up less than twofold.
3) Dominant existence in a particular market

Vertical Mergers

Vertical mergers refer to a situation where a product manufacturer merges with the
supplier of inputs or raw materials. In can also be a merger between a product
manufacturer and the product's distributor.

Vertical mergers may violate the competitive spirit of markets. It can be used to
block competitors from accessing the raw material source or the distribution
channel. Hence, it is also known as "vertical foreclosure". It may create a sort
of bottleneck problem.

As per research, vertical integration can affect the pricing incentive of a

downstream producer. It may also affect a competitors incentive for selecting
input suppliers. Research studies single out several factors, which point to the
fact that vertical integration facilitates collusion. Vertical mergers may promote
collusion through an outlets effect. A corollary of vertical integration is that
integrated business structures are able to perform better in crisis phases.

There are multiple reasons, which promote the vertical integration by firms. Some
of them are discussed below.

# The prime reason being the reduction of uncertainty regarding the availability
of quality inputs as also the uncertainty regarding the demand for its products.
# Firms may also enter vertical mergers to avail the plus points of economies of
integration.
# Vertical merger may make the firms cost-efficient by streamlining its
distribution and production costs. It is also meant for the reduction of
transactions costs like marketing expenses and sales taxes. It ensures that a
firm's resources are used optimally.
Bird's Eye View of US Laws Pertaining to Vertical Mergers
In USA the vertical mergers abide by the 'Clayton Act (15 U.S.C.A. � 12 et seq.)'.
The transactions conducted here fall under the purview of antitrust acts.

It is interesting to note that vertical mergers do not lead to a fall in the

number of operating economic agents at a particular market level. However, it may
result in a change of industry behavior pattern.

At its worst suppliers might be faced with a loss of product market. The retail
chains may run out of stock. Competitors may also face blockages for supplies as
well as outlets.

Vertical mergers by virtue of their market power may effectively block new firms
from entering the market thereby violating the competitive flavor of the market.

The Supreme Court of USA has given a ruling on just 3 cases pertaining to vertical
merger under the �Clayton Act ( section 7 )� as per the latest available
information.

In the first case the Court contradicted the general assumption that section 7 was
not applicable for vertical mergers.

In the following vertical merger case the US Supreme Court observed that the
primary disadvantage of vertical merger lies in the throttling of the spirit and
essence of competition. Business rivals may be denied a fair chance at
competition.

The Court observed that regarding vertical mergers two areas need close scrutiny
and regulation.

One concerns the purpose and nature of the vertical merger arrangement. The other
parameter concerns the industry concentration trend in that specific sector.

In the third judgment passed on vertical merger US Supreme Court quashed Ford's
claim that its acquisition of Autolite had made the latter a better competitor.

Thus a vertical merger is a situation where a firm acquires a product supplier or

a customer. Vertical mergers may at times violate the US federal antitrust laws.
Gist of European Commission Guidelines on Vertical Mergers
In 2007 the European Commission released a new set of guidelines for non-
horizontal mergers. It can be noted that vertical merger is a type of non-
horizontal merger. The Commission is the regulatory body overseeing the compliance
aspect of firms going for vertical mergers.
The guidelines cited instances where conglomerate and vertical mergers
significantly affected the competitive nature of the market.

The European Commission normally is not bothered about 'competition concerns' in

what is commonly known as 'safe harbors'. The guidelines sets benchmarks for
market share levels and concentration levels below which comes the 'safe harbors'.
Market analysts consider this 'safe harbor' aspect of the new guidelines to be an
innovative one.

Seen in overall terms the new guidelines from the European Commission aims at
providing a transparent regulatory guideline framework for the business community
as well as the legal fraternity.

Conglomerate Mergers

As per definition, a conglomerate merger is a type of merger whereby the two

companies that merge with each other are involved in different sorts of
businesses. The importance of the conglomerate mergers lies in the fact that they
help the merging companies to be better than before.
Types of Conglomerate Mergers
There are two main types of conglomerate mergers � the pure conglomerate merger
and the mixed conglomerate merger. The pure conglomerate merger is one where the
merging companies are doing businesses that are totally unrelated to each other.

The mixed conglomerate mergers are ones where the companies that are merging with
each other are doing so with the main purpose of gaining access to a wider market
and client base or for expanding the range of products and services that are being
provided by them

There are also some other subdivisions of conglomerate mergers like the financial
conglomerates, the concentric companies, and the managerial conglomerates.
Reasons of Conglomerate Mergers
There are several reasons as to why a company may go for a conglomerate merger.
Among the more common reasons are adding to the share of the market that is owned
by the company and indulging in cross selling. The companies also look to add to
their overall synergy and productivity by adopting the method of conglomerate
mergers.
Benefits of Conglomerate Mergers
There are several advantages of the conglomerate mergers. One of the major
benefits is that conglomerate mergers assist the companies to diversify. As a
result of conglomerate mergers the merging companies can also bring down the
levels of their exposure to risks.
Implications of Conglomerate Mergers
There are several implications of conglomerate mergers. It has often been seen
that companies are going for conglomerate mergers in order to increase their
sizes. However, this also, at times, has adverse effects on the functioning of the
new company. It has normally been observed that these companies are not able to
perform like they used to before the merger took place.

This was evident in the 1960s when the conglomerate mergers were the general
trend. The term conglomerate mergers also implies that the two companies that are
merging do not even have the same customer base as they are in totally different
businesses.

It has normally been seen that a lot of companies that go for conglomerate mergers
are able to manage a wide variety of activities in a particular market. For
example, these companies can carry out research activities and applied engineering
processes. They are also able to add to their production as well as strengthen the
marketing area that ensures better profitability.

It has been seen from case studies that conglomerate mergers do not affect the
structures of the industries. However, there might be significant impact if the
acquiring company happens to be a leading company of its market that is not
concentrated and has a large number of entry barriers.

Recent Mergers and Acquisitions

Mergers and Acquisitions have been very common incidents since the turn of the
20th century. These are used as tools for business expansion and restructuring.
Through mergers the acquiring company gets an expanded client base and the
acquired company gets additional lifeline in the form of capital invested by the
purchasing company. The recent mergers and acquisitions authenticate such a view.

The Long Success International (Holdings) Ltd merged with City Faith Investments
Ltd on the 8th of April 2008. The value of the merger was US $3.2 million. The
agency in this instance was Bermuda Monetary Authority, Hong Kong Stock Exchange
and other regulatory authority that was unspecified.

Novartis AG acquired 25% stake in Alcon Inc. This acquisition was worth 73,666
million common shares of the company. They bought this stake from Nestle SA for
$10.547 billion by paying $143.18 for every share. It was a privately negotiated
transaction that needed to have a regulatory approval. Simultaneously, Novartis AG
also received an offer of 52% interest that was equivalent of 153.225 million
common shares of Alcon Inc.

Kinetic Concepts acquired each and every remaining common stock of LifeCell Corp
for $51 for each share. Their total offer was $1.743 billion. The deal was done in
accordance to regulatory approvals and the conventional closing conditions.

Kapstone Paper & Packaging Corp acquired the kraft paper mill as well as other
assets of MeadWestVaco.Corp. They paid them $485 million. The deal was conducted
as per the regulatory approvals, receipt of financing and conventional closing
conditions. This deal included a lumber mill in Summerville, hundred percent
interest in Cogen South LLC. The Chip mills in Kinards, Elgin, Andrews and Hampton
in South Carolina are also parts of this deal.

Petrofalcon Corp acquired the remaining shares of Anadarko Venezuela Co from

Anadarko Petroleum Corp. The deal was worth 428.46 million Venezuelan bolivar or
US $200 million. The deal was completed as per the regulatory approvals.

Discover Financial Services, LLC acquired Diners Club International Ltd from
Citigroup Inc. The deal was worth US $165 million. The deal was subjected to
regulatory approvals and normal closing conditions. Cobham PLC took over MMI
Research Ltd. The deal was worth ?16.6 million or $33.099 million. In this deal ?
12.2 was paid in cash, ?1.4 million in loan notes and almost ?3 million in
payments related to profits.

WNS (Holdings) Ltd from India, took over the total share capital of Chang Ltd. The
deal was worth ?9.6 million. Of this amount ?8 million was to be paid in cash and
the rest was to be paid in payments related to profits.
AptarGroup Inc acquired the Advanced Barrier System wing of the CCL Industries
Inc. The deal was worth almost 9.4 million Canadian dollars. The entire amount was
paid on cash. Varian Inc from USA took over 23% stakes of Oxford Diffraction Ltd.
The deal was worth ? 4.6 million pounds. ? 3.5 million was paid in cash, and the
rest was to be paid from the profits made by the company.

Spice PLC took over Melton Power Services Limited. The deal was worth ?4.5
million. ?2.5 million was paid in cash and the rest was to be paid from the
profits made by the company. Spice PLC also got Utility Technology Ltd., GIS
Direct Ltd, and Line Design Solutions Ltd as part of the deal.

Atlas Iron Ltd. Took over a 19.9% stake in the Warwick Resources Ltd. This was
equivalent of 15.124 million new common stock of the Warwick Resources Ltd. They
paid A$ 3.781 million in a transaction that was privately negotiated. The
transaction was executed as per the approval from the shareholders. The selling
price of the shares was A$ 0.23 and it was based on the value of each share that
stood at A$ 0.25 on 4th of April 2008.

Republic Gold Ltd of Australia took over the remaining stocks of Vista Gold
(Antigua) from Vista Gold Corp. The deal was worth $3 million. Republic Gold also
got the Amayapampa project in Bolivia as a part of the deal. Manpower Software PLC
took over Key IT Systems Ltd. The deal was worth ?0.83 million. ?0.375 million was
paid in cash and the rest is supposed to be paid from profits.

Spice PLC took over Utility Technology Ltd. The deal was worth ?0.2 million � ?0.1
million was to be paid in cash and the rest was to be paid from the profits. As
part of this deal Spice PLC also acquired Melton Power Services Ltd, GIS Direct
Ltd and Line Design Solutions Ltd.

Spice PLC took over Line Design Solutions Ltd and GIS Direct Ltd. The total deal
was worth ?0.1 million and the entire amount was paid in cash. Spice PLC also
acquired Utility Technology Ltd and Melton Power Services Ltd as part of the deal.

Thomas Cook Group PLC acquired Elegant Resorts Ltd from Barbara Catchpole and
Geoff Moss. Australian Social Infrastructure Fund merged with API Fund. The deal
was subjected to regulatory approvals and shareholder. Greenbier Cos Inc took over
Roller Bearing Industries Inc., from AB SKF. Fijian Holdings Ltd has took over
50.2% interest in RB Patel Group Ltd.

Honeywell International Inc has acquired Norcross Safety Products LLC from Odyssey
Investment Partners LLC. The deal was worth $1.2 billion. It was subjected to
various kinds of regular closing conventions and regulatory approvals.

Mergers and Acquisitions in Banking Sector

About Mergers and Acquisitions in Banking Sector

Mergers and acquisitions in banking sector have become familiar in the majority of
all the countries in the world. A large number of international and domestic banks
all over the world are engaged in merger and acquisition activities. One of the
principal objectives behind the mergers and acquisitions in the banking sector is
to reap the benefits of economies of scale.

With the help of mergers and acquisitions in the banking sector, the banks can
achieve significant growth in their operations and minimize their expenses to a
considerable extent. Another important advantage behind this kind of merger is
that in this process, competition is reduced because merger eliminates competitors
from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because
the merging entities are involved in the same kind of business or commercial
activities. Sometimes, non-banking financial institutions are also merged with
other banks if they provide similar type of services.

Through mergers and acquisitions in the banking sector, the banks look for
strategic benefits in the banking sector. They also try to enhance their customer
base.

In the context of mergers and acquisitions in the banking sector, it can be

reckoned that size does matter and growth in size can be achieved through mergers
and acquisitions quite easily. Growth achieved by taking assistance of the mergers
and acquisitions in the banking sector may be described as inorganic growth. Both
government banks and private sector banks are adopting policies for mergers and
acquisitions.

In many countries, global or multinational banks are extending their operations

through mergers and acquisitions with the regional banks in those countries. These
mergers and acquisitions are named as cross-border mergers and acquisitions in the
banking sector or international mergers and acquisitions in the banking sector. By
doing this, global banking corporations are able to place themselves into a
dominant position in the banking sector, achieve economies of scale, as well as
garner market share.

Mergers and acquisitions in the banking sector have the capacity to ensure
efficiency, profitability and synergy. They also help to form and grow shareholder
value.

In some cases, financially distressed banks are also subject to takeovers or

mergers in the banking sector and this kind of merger may result in monopoly and
job cuts.

Deregulation in the financial market, market liberalization, economic reforms, and

a number of other factors have played an important function behind the growth of
mergers and acquisitions in the banking sector. Nevertheless, there are many
challenges that are still to be overcome through appropriate measures.

Mergers and acquisitions in banking sector are controlled or regulated by the apex
financial authority of a particular country. For example, the mergers and
acquisitions in the banking sector of India are overseen by the Reserve Bank of
India (RBI).
Major Mergers and Acquisitions in the Banking Sector of the United States
Following are some of the important mergers and acquisitions that took place in
the banking sector of the United States:

* 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.
* The merger of Firstar Corporation with U.S. Bancorp. The name of the
resultant entity is U.S. Bancorp.
* The merger of First Union Corporation with Wachovia Corporation. The name of
the newly formed company is Wachovia Corporation.
* The merger of Fifth Third Bancorp with Old Kent Financial Corporation. The
name of the merged company is Fifth Third Bancorp.
 * The merger of Summit Bancorp with FleetBoston Financial Corporation. The new
company is named FleetBoston Financial Corporation.
* The merger of Golden State Bancorp, Inc. with Citigroup Inc. The name of the
newly formed company is Citigroup Inc.
* The merger of Dime Bancorp, Inc. with Washington Mutual and the name of the
merged entity is Washington Mutual.
* The merger of FleetBoston Financial Corporation with Bank of America
Corporation. The newly formed entity is Bank of America Corporation.
* The merger of Bank One with J.P. Morgan Chase & Company. Name of the new
company is J.P. Morgan Chase & Company.
* The merger of SunTrust with National Commerce Financial and the newly formed
entity is also named SunTrust.
* The merger of Hibernia National Bank with Capital One Financial Corporation
and the merged entity is known as Capital One Financial Corporation.
* The merger of MBNA Corporation with Bank of America and the resultant entity
is known as Bank of America Card Services.
* The merger of AmSouth Bancorporation with Regions Financial Corporation and
the name of the newly formed entity is Regions Financial Corporation.
* The merger of LaSalle Bank with Bank of America and the new entity formed is
called as Bank of America.
* The merger of Mellon Financial Corporation with Bank of New York Company,
Inc. and the newly merged entity is known as Bank of New York Mellon.

Mergers and Acquisitions in Telecom Sector

The number of mergers and acquisitions in Telecom Sector has been increasing
significantly. Telecommunications industry is one of the most profitable and
rapidly developing industries in the world and it is regarded as an indispensable
component of the worldwide utility and services sector. Telecommunication industry
deals with various forms of communication mediums, for example mobile phones,
fixed line phones, as well as Internet and broadband services.

Currently, a slew of mergers and acquisitions in Telecom Sector are going on

throughout the world. The aim behind such mergers is to attain competitive
benefits in the telecommunications industry.

The mergers and acquisitions in Telecom Sector are regarded as horizontal mergers
simply because of the reason that the entities going for merger or acquisition are
operating in the same industry, that is telecommunications industry.

In the majority of the developed and developing countries around the world,
mergers and acquisitions in the telecommunications sector have become a necessity.
This kind of mergers also assists in creation of jobs.

Both transnational and domestic telecommunications services providers are keen to

try merger and acquisition options because this will help them in many ways. They
can cut down on their expenses, achieve greater market share and accomplish market
control.

Mergers and acquisitions in the telecommunications sector have been showing a

prosperous trend in the recent past and the economists are advocating that they
will continue to do so. The majority of telecommunication services providers have
understood that in order to grow globally, strategic alliances and mergers and
acquisitions are the principal devices.
Private sector investment and FDI (Foreign Direct Investment) have also boosted
the growth of mergers and acquisitions in the telecommunications sector.

Over the last few years, a phenomenal growth has been witnessed in the number of
mergers and acquisitions taking place in the telecommunications industry. The
reasons behind this development include the following:

# Deregulation
# Introduction of sophisticated technologies (Wireless land phone services)
# Innovative products and services (Internet, broadband and cable services)

Economic reforms have spurred the growth in the mergers and acquisitions industry
of the telecommunications sector to a satisfactory level.

Mergers and acquisitions in Telecom Sector can also have some negative effects,
which include monopolization of the telecommunication products and services,
unemployment and others. However, the governments of various countries take
appropriate steps to curb these problems.

In countries like India, mergers and acquisitions have increased to a considerable

level from the mid 1990s. In the United States, the mergers and acquisitions in
the telecommunications sector are going on in a full-fledged manner.

The mergers and acquisitions in the telecommunications sector are governed or

supervised by the regulatory authority of the telecommunication industry of a
particular country, for instance the Telecom Regulatory Authority of India or
TRAI. The regulatory authorities always keep a tab on the telecommunications
industry so that no monopoly is formed.

Significant Mergers and Acquisitions in Telecom Sector

Following are the important mergers and acquisitions that took place in the
telecommunications sector:

* The takeover of Mobilink Telecom by Broadcom. This can also be described as

a suitable example of product extension merger
* AT&T Inc. taking over BellSouth
* The acquisition of eScription Inc. by Nuance Communications Inc.
* The taking over of Hutchison Essar by the Vodafone Group. Now it has become
Vodafone Essar Limited
* China Communications Services Corporation Ltd. taking over China
International Telecommunication Construction Corporation
* The acquisition of Ameritech Corporation by SBC (Southwestern Bell
Corporation) Communications
* The merger of GTE (General Telephone and Electronics) with Bell Atlantic
* The acquisition of US West by Qwest Communications
* The merger of MCI Communications Corporation with Worldcom

Benefits Provided by the Mergers and Acquisitions in the Telecommunications Sector

Following are the benefits provided by the mergers and acquisitions in the
telecommunications industry:

* Building of infrastructure in a more convenient way

* Licensing options for mergers and acquisitions are often found to be easier
* Mergers and acquisitions offer extensive networking advantages
* Brand value
 * Bigger client base
* Wide array of products and services

Terms Relating To Mergers And Acquisitions

In this article we would elucidate in brief, some of the important terms that are
used to explain the concepts of merger and acquisition.
Asset Stripping
When a company acquires another and sells it in parts expecting that the funds
generated would match the costs pf acquisition, it is known as asset stripping.
Black Knight
The company that makes a hostile takeover is known as the Black Knight.
Dawn Raid
This is a process of buying shares of the target company with the expectation that
the market prices may fall till the acquisition is completed.
Demerger or Spin off
During the process of corporate restructuring, a part of the company may beak up
and set up as a new company and this is known as demerger. Zeneca and Argos are
good examples in this regard that split from ICI and American Tobacco
respectively.
Carve �out
This is a case of selling a small portion of the company as an Initial Public
Offering.
Greenmail
Greenmail is a situation where the target company purchases back its own shares
from the bidding company at a higher price.
Grey Knight
A grey knight is a company that takes over another company and its intentions are
not clear.
Hostile Takeover
Hostile bids occur when acquisitions take place without the consent of the
directors of the target company. This confrontation on the part of the directors
of the target company may be short lived and the hostile takeover may end up being
friendly. Most American\n and British companies like the phenomenon of hostile
takeovers while there is some more which do not like such unfriendly takeovers.
Macaroni Defense
Macaroni Defense is a strategy that is taken up to prevent any hostile takeovers.
The issue of bonds that can be redeemed at a higher price if the company is taken
over does this.
Management Buy In
When a company is purchased and the investors bring in their managers to control
the company, it is known as management buyout.
Management Buy Out
In a management buy out, the managers of a company purchases it with support from
venture capitalists.
Poison Pill Or Suicide Pill Defense
This is a strategy that is taken by the target company to make itself less
appealing for a hostile takeover. The bondholders are given the right to redeem
their bonds at a premium should a takeover occur.