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2.merger and Acquisition
2.merger and Acquisition
2.merger and Acquisition
SUPERVISED BY:
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STUDENT’S DECLARATION
I hereby declare that the project work with the title MERGER AND
ACQUISITION submitted by me for the partial fulfillment of the
degree of B.Com. Honours in Accounting & Finance under the
University of Calcutta is my original work and has not been submitted
earlier to any other University for the fulfillment of the requirement
for any course of study.
I also declare that no chapter of this manuscript in whole or in part
has been incorporated in this report form earlier work done by others
or by me. However, extracts of any literature which has been used for
this report has been duly acknowledged providing details of such
literature in the references.
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SUPERVISOR’S CERTIFICATE
This is to verify that Mr. Debjit Chaudhuri, a student of B.Com.
Honours in Accounting & Finance of Syamaprasad College under
the Calcutta University has worked under my supervision and
guidance for her Project work with the title MERGER AND
ACQUISITION.
The project report, which she is submitting is her genuine and original
work to the best of my knowledge.
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ACKNOWLEDGEMENT
topic.
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CONTENTs
SL.NO. PARTICULARS
1 Introduction
• Meaning And Concept
• Objectives of M&A
• Business Valuation
• Research Methodology
• Literature Survey
2 Conceptual Framework
3 International Scenario
5 Conclusion
• Limitation
• M&A Failure
• Ending Thoughts
6 Bibliography
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1. INTRODUCTION
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MEANING AND CONCEPT
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OBJECTIVES OF M&A
Every merger has its own unique reasons why the combining of two
companies is a good business decision . The underlying principle
behind merger and acquisition is simple. The joining or merging of
the two companies creates additional value which we called synergy
value.
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.
Economy of scope:
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Increased revenue or market share:
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:
Taxation:
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Resource transfer:
Vertical integration:
Hiring:
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Business valuation
Asset valuation
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Research Methodology
The methodology adopted in conducting the proposed study are as
follows.-
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2. Conceptual Framework
The major theories that indicate the sources of synergy that would be
discussed in this study include:
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3. INTERNATIONAL SCENARIO
Most histories of M&A begin in the late 19th Century United States.
However, mergers coincide historically with the existence of
companies. In 1708, for example, the East India Company merged
with an erstwhile competitor to restore its monopoly over Indian
trade. In 1784, the Italian Monte dei Paschi and Monte Pio banks
were united as the Monti Reuniti. In 1821, the Hudson's Bay
Company merged with the rival North West Company.
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volume production. In addition, many of these mergers were capital-
intensive. Due to high fixed costs, when demand fell, these newly-
merged companies had an incentive to maintain output and reduce
prices. However more often than not mergers were "quick mergers".
These "quick mergers" involved mergers of companies with unrelated
technology and different management. As a result, the efficiency
gains associated with mergers were not present. The new and bigger
company would actually face higher costs than competitors because
of these technological and managerial differences. Thus, the mergers
were not done to see large efficiency gains; they were in fact done
because that was the trend at the time. Companies which had specific
fine products, like fine writing paper, earned their profits on high
margin rather than volume and took no part in Great Merger
Movement.
MERGER WAVES
The economic history has been divided into Merger Waves based on
the merger activities in the business world as:
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4. PRESENTATION, ANALYSIS & FINDINGS
Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion
making the Indian company the world’s sixth largest steel producer.
This acquisition process has started long back in the year 2005.
However, Corus itself was involved in a considerable number of
Merger & Acquisition deals and joint ventures.
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Brief History of TATA Steel:
Corus Group Inc was formed on 6th October 1999 through the merger
of two companies British Koninklijke Hoogovens, following the
privatisation of many steel works companies by UK government. The
company consists of four divisions which include strip products, long
products, aluminium and distribution and building systems. With
headquarters in London, Corus operates as an international company
satisfying the demand of many steel customers worldwide. Its core
business comprises of manufacturing, allocation of steel and aluminium
products and services. In terms of performance the company is regarded
as the largest steel producer in UK with Pound 10142 millions of
annual revenue for 2005 and a workforce of 50,000 employees.
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With the help of collection of primary source of data by way of conducting
several surveys, group discussions and other discussion forums and panels,
following information is revealed --
Liabilities (in GBP million) Total < 1 yr 1-3 yrs 3-5yrs >5 yrs
Long term debt obligations 1,101 - 567 534 -
Finance Lease obligations 159 24 36 26 73
Interest commitments 331 82 149 94 6
Operating lease obligations 462 75 102 76 209
Purchase obligations 350 331 13 6 -
Other long term liabilities 30 - - - 30
Total 2,433 512 867 736 318
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The following is the date wise process of the Merger :
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4/2/07 The courts officially approved Tata Steel’s
acquisition of Corus in a deal valued at GBP
6.2 billion ($12 billion dollars).
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After effect of Merger :
On July 23, 2007, Tata Steel stock reached a 52-week high close of
721.00 on the Bombay Stock Exchange’s (BSE) 30-stock Sensex after
hitting a low of 399.00 on March 8, 2007. Tata Steel was one of the
market leaders for the BSE Sensex up 27% in 2007. Standard &
Poor’s Ratings Services cut its credit rating to BB from BBB and
removed them from the negative watch list on which they were placed
after the financing structure for the acquisition of Corus was
announced. The rating was changed to a positive outlook. According
to one Standard & Poor’s analyst, “the rating remains constrained by
the weak business profile of Corus, which is characterized by lack of
integration or upstream linkages and relatively high cost of operations
in the UK, resulting in lower-than average profitability.” However,
S&P maintains that the strategic significance and size of Corus, along
with its importance to Tata Steel’s future plans, give strong economic
impetus to support the acquisition (Forbes.com, 2007, July 11).
Unfortunately, the current global economic downturn has wiped all
previous gains. By February 2009, Tata Steel’s stock price had
declined to Rs. 168.05, after a 52-week low of Rs.145.35 and a 52-
week high of Rs. 925.00.
Clearly, Tata Steel gambled on a strategy based on anticipation of
global consolidation of the steel industry. Along with Arcelor-Mittal,
it may still be poised to emerge as one the few
global steel producers. Tata Steel’s strategy will pay off if
consolidation in the European steel leads to a more stable pricing
structure if not now, by 2011. Second, if potential customers like
Toyota want to buy steel in different countriesn in Europe as well as in
India, this would give global steel producers (like Tata Steel) a
competitive advantage (Financial Times, 2007, February 1, 12).
Clearly, the global steel industry and Tata Steel in particular will be
closely watched in the years ahead, as some experts continue to
maintain that the steel industry is a forecaster of overall global
economic well-being.
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5. CONCLUSIONS
The present study has seen limitations that need to be taken into
In this research report there are certain things which are needed to
research work. With more time, the Case Study could have been
market analysis.
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M&A failure
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ENDING THOUGHTS
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.
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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6. BIBLIOGRAPHY
en.wikipedia.org/wiki/Mergers_and_acquisitions
www.investopedia.com/terms/m/merger.asp
http://indiamergers.co.in/
http://en.wikipedia.org/wiki/Tata_Corus_acquisition
http://tata-corus.blogspot.in/
http://www.britannica.com/EBchecked/topic/376016/merger
Tata Steel ratings cut to ‘BB’ with positive outlook after Corus
buy.
AFX News Limited, TFN.newsdesk@thomson.com at
Forbes.com.
Tata Steel Makes It to Fortune 500 List, Indiaserver.com
www.domain-b.com
www.Businessweek.com/print/globalbiz/content/Jan
www.forbes.com/2006/10/22/tata-corus-mna-biz-
cx_cx_rd_1022corus_print.html on
www.iht.com/bin/print.php?id-4414416
www.tatasteel.com
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