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Main Project (FSM) Mergerts and Aquisition
Main Project (FSM) Mergerts and Aquisition
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. Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company. Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are Horizontal Merger, Vertical Merger, Co-generic Merger and Conglomerate Merger. Merger and acquisition process is the most challenging and most critical one when it comes to corporate restructuring. One wrong decision or one wrong move can actually reverse the effects in an unimaginable manner. It should certainly be followed in a way that a company can gain maximum benefits with the deal. Merger agreement is a contract that comprehensively lists down all details governing the merger of one or more companies. It is a main document that is legally binding on all the parties to the contract. To make it enforceable, the agreement has to be approved by and duly signed by
State Governments have incorporated in their respective Acts a provision for obtaining sanction in writing, of RBI for an order.
India in the recent years has showed tremendous growth in the M&A deal. It has been actively playing in all industrial sectors. It is widely spreading far across the stretches of all industrial verticals and on all business platforms. The increasing volume is witnessed in various sectors like that of finance, pharmaceuticals, telecom, FMCG, industrial development, automotives and metals. Corporate merger and acquisition is defined as the process of buying, selling, and integrating different corporations with the desire of expansion and accelerated growth opportunities. This kind of association in any form plays an integral role when it comes to business and economy as it results in significant restructuring of a business. Companies can enter into various arrangement with its foreign related company to increase their market share and efficiency. However, prior approval of RBI has to be sought. In a merger of a listed company into an unlisted company, the specific provisions under 2013 Act would also have to be considered apart from the securities law regulations
PURPOSE OF THE STUDY:The basic purpose behind the study was to get detailed knowledge about the Mergers and Acquisitions. The study was basically aimed to know more about the Process, RBI Guidelines , Success, Strategies of mergers and acquisitions and also the difference between Mergers And Acquisitions. And also to get knowledge about the Implications Of Companies Act, 2013-Mergers And Restructuring.
OBJECTIVES OF THE STUDY: To study about Mergers and Acquisitions. To study about process of Mergers and Acquisitions. To study about RBI guidelines for Mergers and Acquisitions. To study about success of Mergers and Acquisitions. To study about strategies of Mergers and Acquisitions. To study about the difference between Mergers And Acquisitions. To Study About The Implications Of Companies Act, 2013-Mergers And Restructuring
RESEARCH METHODOLOGY:-
SECONDARY DATA
LIMITATIONS:-
Horizontal Merger
Conglomerate Merger
Types
Vertical Merger
Co-generic Merger
Horizontal Merger:This kind of merger exists between two companies who compete in the same industry segment. The two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits. This kind substantially reduces the number of competitors in the segment and gives a higher edge over competition.
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through acquisition. The basic purpose of merger or business combination is to achieve faster growth of the corporate business. Faster growth may be had through product improvement and competitive position. Other possible purposes for acquisition are short listed below: 1. Procurement of supplies: a) To safeguard the source of supplies of raw materials or intermediary product.
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2. Revamping production facilities: a) To achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and resources. b) To standardize product specifications, improvement of quality of product, expanding. c) Market and aiming at consumers satisfaction through strengthening after sale Services. d) To obtain improved production technology and know-how from the offeredcompany. e) To reduce cost, improve quality and produce competitive products to retain and Improve market share.
3. Market expansion and strategy: a) To eliminate competition and protect existing market. b) To obtain a new market outlets in possession of the offeree. c) To obtain new product for diversification or substitution of existing products and to enhance the product range. d) Strengthening retain outlets and sale the goods to rationalize distribution;5.To reduce advertising cost and improve public image of the offeree company;6.Strategic control of patents and copyrights.
4. Financial strength: a) To improve liquidity and have direct access to cash resource. b) To dispose of surplus and outdated assets for cash out of combined enterprise. c) To enhance gearing capacity, borrow on better strength and the greater assets backin. d) To avail tax benefits;5.To improve EPS (Earning Per Share).
5. General gains: a) To improve its own image and attract superior managerial talents to manage itsaffairs.
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6. Own developmental plans: a) The purpose of acquisition is developmental plans. b) A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc. c) It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its market position. backed by the offeror companys own
7. Strategic purpose: The Acquirer Company view the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.
8. Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeoversand cultivate situations of collaborations sharing goodwill of each other to achie ve performance heights through business combinations. The combining corporate aim at circular combinations by pursuing this objective.
9. Desired level of integration: Mergers and acquisition are pursued to obtain the desired level of integration between the two combining business houses. Such integration could be operational or financial. This gives birth to conglomerate combinations. The purpose and
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Business Valuation
Proposal Phase
Following are some of the important steps in the M&A process: 1. Business Valuation:Business valuation or assessment is the first process of merger and acquisition. This step includes examination and evaluation of both the present and future market value of the target company. A thorough research is done on the history of the company with regards to capital gains, organizational structure, market share, distribution channel, corporate culture, specific business strengths, and credibility in the market. There are many other aspects that should be considered to ensure if a proposed company is right or not for a successful merger.
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circumstances where any party fails to comply with the laid down terms and conditions. The agreement should take into account all possibilities and lay down the plan of action for the same. The legal terminology should be correctly and carefully used. Moreover, any spelling mistake in the names can nullify the contract. A number of formats are easily available for drafting a merger agreement. But due to the level of complexity and accountability involved, they are normally drafted by law firms for their clients. Some of the important components of the agreement are:
Agreement date
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With
view
to
facilitating
consolidation
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emergence
of
strong
entities
and providing an avenue for non disruptive exit of weak/unviable entities in the banking sect or, it has been decided to frame guidelines to encourage merger/amalgamation in the sector. Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to formulate a scheme with regard to merger and amalgamation of banks, the State Governments have incorporated in their respective Acts a provision for obtaining prior sanction in writing, of RBI for an order. The request for merger can emanate from banks registered under the same State Act or from banks registered under the Multi State Co-operative Societies Act(Central Act) for takeover of a banks registered under the State Act. While the State Acts specifically provide for merger of co-operative societies registered under them, the position with regard to take over of a co-operative bank registered under the State Act by a co-operative bank registered under the CENTRAL. Although there are no specific provisions in the State Acts or the Central Act for the merger of a co-operative under the State Acts with that under the Central Act, it is felt that if all concerned including administrators of the concerned Acts are agreeable to order merger/ amalgamation, RBI may consider proposals on merits leaving the question of compliance with relevant statutes to the administrators of the Acts.
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Mergers and acquisitions in the banking sector is a common phenomenon across the world. The primary objective behind this move is to attain growth at the strategic level in terms of size and customer base. This, in turn, increases the credit-creation capacity of the merged bank tremendously. Small banks fearing aggressive acquisition by a large bank sometimes enter into a merger to increase their market share and protect themselves from the possible acquisition. Banks also prefer mergers and acquisitions to reap the benefits of economies of scale through reduction of costs and maximization of both economic and non-economic benefits. This is a vertical type of merger because all banks are in the same line of business of collecting and mobilizing funds. In some instances, other financial institutions prefer merging with a bank in case they provide a similar type of banking service. Another important factor is the elimination of competition between the banks. This way considerable amount of funds earlier used for sustaining competition can be channelized to grow the banking business. Sometimes, a bank with a large bad debt portfolio and poor revenue will merge itself with another bank to seek support for survival. However, such types of mergers are accompanied with retrenchment and a drastic change in the organizational structure. Consolidating the business also makes the bank robust enough to sustain in the everychanging business environment. They find it easier to adapt themselves quickly and grow in the domestic and international financial markets.
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Corporate merger and acquisition is defined as the process of buying, selling, and integrating different corporations with the desire of expansion and accelerated growth opportunities. This kind of association in any form plays an integral role when it comes to business and economy as it results in significant restructuring of a business. The key objective of corporate mergers and acquisitions is to increase market competition. This can be done in various ways using different methods of merger like horizontal merger, conglomeration merger, market extension merger, and product extension merger. All the types work towards a common goal but behold different characteristics suited to get the best outcome in terms of growth, expansion, and financial performance. In many significant ways, this kind of restructuring a business proves to be beneficial to the corporate world. It greatly helps to share all resources, skills, talents, and knowledge that eventually increases the wisdom bar within the company. This can further help to combat the competitive challenges existing in the market. Further to that, elimination of duplicate departments, possibility of cross selling, reduction of tax liability, and exchange of resources are other big time benefits of corporate merger and acquisition. This not only helps to cut the extra cost involved in the operation and gain financial gains but also help to expand across boundaries and enhance credibility. This in the long run help increase revenue and market share, fulfillment of the only desire that drives the growth of M&A.
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bottomlines. However, it is not as simple as it sounds. According to statistical reports, more than 64% of the times the mergers fail to accomplish the promised results. They suffer from a decline in the shareholders' wealth and conflicts in management. Therefore, a success of any merger initiative primarily depends upon the objective behind the need for a merger. Following globalization, many small organizations hastily got into mergers to stand against highly-competitive, large scale multinational corporations. They took mergers as a protective strategy to save their business from being perished in the newly created dynamic environment. Unfortunately, in many cases, it did not work due to lack of proper planning and implementation of the planned merger. Moreover, the high costs of business consolidation (professional fees of bankers, lawyers, advisors, paperwork, etc.) could not be covered by the combined revenue of the merged organization leading to its failure. Another reason for an unsuccessful merger is the lack of efficient management to unite different organizational cultures. The most challenging task is to bring together people and make them work as a team. Establishing a new organizational structure that fits all the employees is also difficult. Hence, many fearing retrenchment resign leading to a complete break-down at the operational level.
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The new threshold limit for raising objections in regard to scheme or arrangement will protect the scheme from small shareholders and creditors frivolous litigation and objection.
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Introduction Nokia being the largest manufacturer of mobile phones in the world with a share of 39% of all the mobile phones across the world in the year 2009 has acquired many organisations to continue to be the leader in the market. Nokia has global revenue of 37.2 billion GBP annually with an operating profit of 1 billion GBP globally (Nokia, 2010). Major Acquisition by Nokia The major acquisition done by Nokia to date is the acquisition of the Navteq, a United States based company. Nokia has paid 5.3 billion GBP for this acquisition which is a huge amount. Navteq is a major provider of GIS (geographical Information Systems) accounting to a market share of 85% and has many clients such as BMW, Mercedes Benz etc.,(Nokia acquisitions, 2008). Purpose of this Acquisition The main purpose of this major acquisition done by Nokia is to be the leader in the mobile communications sector providing the consumers with the advantage of GPS on their Nokia mobile devices. There were many problems in this acquisition as the entire value of Navteq is a mere 398 million GBP at the time of acquisition (High beam, 2008). Paying a huge
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chapter 9 : CONCLUSION
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. There are alternatives to growth by acquisition. It is sometimes argued that as markets become more global mergers are required to allow companies to be large enough to compete. For example, telecommunications companies need to be very large to support the required research and development overhead. Other industries have, however, found ways round this problem. Joint ventures in the car industry between Honda/BL and Ford/Mazda are examples of alternatives to merger
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Recommendation
Not all mergers are failures; some in fact are very successful. On average, however, research shows that expansion based on merger and takeover seems to bring few value gains to acquiring company shareholders. Mergers, however, are often in the interests of managers. They view success in a different light from shareholders and are often more concerned with the job security and career prospects brought by sheer size. 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. The companies have to look for other option to retain control and to maintain liquidity as post-merger all the intercompany investment will be cancelled and no further shares will be issued in lieu of the intercompany investment. In a merger of a listed company into an unlisted company, the specific provisions under 2013 Act would also have to be considered apart from the securities law regulations. Companies can enter into various arrangement with its foreign related company to increase their market share and efficiency. However, prior approval of RBI has to be sought.
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BIBLIOGRAPHY
BOOKS: Indian Banking in New Millennium - G.V.R Manian
WEBSITES:
www.indiatimes.com en.wikipedia.org/wiki/mergers and acquisition. http://www.theguardian.com/business/mergers-andacquisitions http://gtw3.grantthornton.in/assets/Companies_ActMergers_and_restructuring.pdf
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