Mid Sem Merger & Acquisition

Jaya Mishra

GROUP B- ANSWER 2

Introduction: Meaning:

Mergers and acquisitions (Hereafter referred as ‘M&A’) is a term that describes the
consolidation of companies or assets through various types of financial transactions, including
mergers, acquisitions, consolidations, tender offers, purchase of assets, and management
acquisitions. In an acquisition, one company purchases another outright whereas in a merger is
the combination of two firms, which subsequently form a new legal entity under the banner of
one corporate name.

Meaning of Merger: A full joining together of two previously separate corporations. A true
merger in the legal sense occurs when both businesses dissolve and fold their assets and
liabilities into a newly created third entity. This entails the creation of a new corporation.

The reason behind Mergers and Acquisitions:

Merger and Acquisition are fundamental tools that are considered by organizations to flare their
business around the globe and furthermore to render sustainable development for business.
Subsequently, coming up next is the reason behind the prevalent practice of mergers &
acquisitions.

Different types of Mergers & Examples

1. Horizontal mergers: It refers to two firms operating in same industry or producing ideal
products combining together. For e.g., in the banking industry in India, acquisition of
Times Bank by HDFC Bank, Bank of Madura by ICICI Bank, Nedungadi Bank by
Punjab National Bank etc. in consumer electronics, acquisition of Electrolux’s Indian
operations by Videocon International Ltd., in BPO sector, acquisition of Daksh by IBM,
Spectramind by Wipro etc. The main objectives of horizontal mergers are to benefit from
economies of scale, reduce competition, achieve monopoly status and control the market.

Example Horizontal Merger: Exxon and Mobil

Exxon Corp. and Mobil Corp. completed their merger in November 1999 following approval
from the Federal Trade Commission (FTC). Exxon and Mobil were the top two oil producers,
respectively in the industry prior to the merger. The merger resulted in a major restructuring
of the combined entity, which included selling more than 2,400 gas stations across the United
States.
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Jaya Mishra

2. Vertical merger: A vertical merger can happen in two ways. One is when a firm acquires
another firm which produces raw materials used by it. For e.g., a tyre manufacturer acquires a
rubber manufacturer, a car manufacturer acquires a steel company, a textile company acquires a
cotton yarn manufacturer etc. Another form of vertical merger happens when a firm acquires
another firm which would help it get closer to the customer. For e.g., a consumer durable
manufacturer acquiring a consumer durable dealer, an FMCG company acquiring m advertising
company or a retailing outlet etc.

Example Vertical Merger– Walt Disney and Pixar

Walt Disney acquired Pixar Animation Studios for $7.4 billion in 2006. Pixar was an innovative
animation studio and had talented people. Walt Disney was a mass media and entertainment
company. Before the merger, Disney’s own animation films were failing. Disney’s CEO said that
animation was a critical engine for driving growth across its businesses. Pixar designed a slew of
successful movies after the merger. These movies turned out to be innovative with ever-lasting
characters that ended up delighting the audience. The merger also helped Disney reduce its
competition. If Pixar would have ended up in someone else’s hands, then it would be been
extremely negative for Disney.

3. Conglomerate merger: It refers to the combination of two firms operating in industries

unrelated to each other. In this case, the business of the target company is entirely different
from those of the acquiring company. For e.g., a watch manufacturer acquiring a cement
manufacturer, a steel manufacturer acquiring a software company etc. The main objective of
a conglomerate merger is to achieve i big size.

Conglomerate merger Example : L&T and Voltas Ltd. Larsen & Turbo (L&T) is the India’s
largest engineering company with expertise in wide area like infrastructure, oil and gas, power
and process. And Volta a Tata group company, is a major player in the electro-mechanical
Engineering.

4. Concentric merger: It refers to combination of two or more firms which are related to each
other in terms of customer groups, functions or technology.

Example : combination of a computer system manufacturer with a UPS manufacturer. Banking

giant Citicorp merged with financial services company Travelers Group in 1998. 1 In a deal
valued at $70 billion, the two companies joined forces to create Citigroup Inc. 2 While both
companies were in the financial services industry, they had different product lines.

5. Forward merger: In a forward merger, the target merges into the buyer.

Example ICICI Bank acquired Bank of Madura, Bank of Madura which was the target, merged
with the acquirer, ICICI Bank.
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Jaya Mishra

6. REVERSE MERGER: In this case, the buyer merges into the target and the shareholders of
the buyer get stock in the target. This is treated as a stock acquisition by the buyer.

Example of Reverse Merger: India bulls (April, 2012) - India bulls completed the reverse
merger of India bulls’ Financial services with India bulls Housing Finance. The share swap ratio
among the stakeholders in the two companies was fixed at 1:1. This move enabled efficient
utilization of India bulls Financials’ capital, consolidating it into the housing finance company,
which accounts for most of the incremental mortgage business.

7. SUBSIDIARY MERGER: A subsidiary merger is said to occur when the buyer sets up an
acquisition subsidiary which merges into the target.

Example of Subsidiary Merger: ITC, Marico, Tata Power, Tata Motors and BASF are some of
the large corporates that have undertaken merger of subsidiaries with the parent for operational
efficiencies, better utilization of resources and maximization of shareholder value.

Conclusion: Thus to conclude we can say that Merger involves the process of combining two
companies into one. The goal of combining two or more businesses is to try and achieve synergy
– where the whole (new company) is greater than the sum of its parts (the former two separate
entities).

GROUP B - ANSWER 1

MERGERS & ACQUISITIONS (M&A):

Mergers and acquisitions (M&A) refer to transactions between two companies combining in
some form. Although mergers and acquisitions (M&A) are used interchangeably, they come with
different legal meanings. In a merger, two companies of similar size combine to form a new
single entity.

A merger is a combination of two corporations, as a result of which one loses its corporate
entity. The surviving corporation acquires the liabilities, assets, personnel and much of the
reputation of the fusing company.

In an Acquisition, a new company does not emerge. Instead, the smaller company is often
consumed and ceases to exist with its assets becoming part of the larger company.
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On the other hand, an acquisition is when a larger company acquires a smaller company, thereby
absorbing the business of the smaller company. M&A deals can be friendly or hostile, depending
on the approval of the target company’s board.

MERGER IS DIFFERENT FROM ACQUISITION

A merger is fundamentally different from a statutory consolidation in the sense that it involves a
combination of two companies, whereby an entirely new corporation is formed. Both the old
companies cease to exist, and the share of their common stock are exchanged for shares in the
new company. When two companies of about the same size combine, they usually consolidate;
when two companies differ significantly in size, they usually merge. Though mergers are not
common, they have a market effect, whenever they do occur.

In deciding about a merger, the management should pay adequate attention to the following
points:

1. Reasons for entering into a merger;

2. Alternative ways to finance acquisition;
3. Problems of compatibility.

Key Differences

 One of the key differences is that the merger is the process where two or more companies
agree to come together and form a new company; acquisition is the process by which a
financially strong company takeovers a less financially strong company by buying more than
50% of its shares.
 Merger is a strategic decision made after careful discussion and planning between the
companies going to be merged. Hence there are fewer chances of a chaotic atmosphere after
merging. The acquisition is also a strategic decision, but in most cases, the decision is not
mutual. Hence, there is a lot of hostility and chaos after an acquisition has been made.
 Companies that are merged usually consider each other of equal stature, and hence they help
each other out to create a synergy. In the case of an acquisition, the company that acquires
imposes its will on the acquired company, and the acquired company is stripped of its
freedom and decision-making. The power difference between the acquired and acquiring
companies is huge.
 Since the merger requires a whole new company to be formed, it needs many legal
formalities and procedures to be followed. The acquisition doesn’t have many legal
formalities and paperwork to be filled as compared to the merger.

Basis for
Merger Acquisition
comparison
The merger is a process in which more The acquisition is a process in which
Definition than one companies come forward to one company takes control of
work as one. another company.
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Jaya Mishra

Considered to be hostile and

Terms Considered to be friendly and planned.
sometimes involuntary (not always)
The acquired company comes under
Title A new name is given.
the name of the acquiring company.
Two or more companies that consider Acquiring a company is always
Scenario
each other on equal terms usually merge. larger than the acquired company.
The power-difference is almost nil The acquiring company gets to
Power
between the two companies. dictate terms.
In an acquisition, there are no new
Stocks Merger leads to new stocks being issued.
stocks issued.
Merging of Glaxo Welcome and Tata Motors acquisition of Jaguar
Example
SmithKline Beecham to GlaxoSmithKline Land Rover

GROUP A

Ans 1 – B – Market Extension Merger

Ans 2. –C – Godfather Offer

Ans 3 – A – Low to High Debt

Ans 4- B – The Clayton Act

Ans 5 – D – Vertical Merger

Ans 6 – C -Neutral

Ans 7 – D –None of These

Ans 8 – D All of these

Ans 9- B The extension of economies of scale

Ans 10 – BcThe acquisition of critical mass