Acquisition Project

Submitted By

Shalini (1527059)
Arghyajit (1527107)
Sandip Kaur (1527057)
Sabrina (1527355)
Nagaraj (1527220)
Ayush (1527305)
Shilpa Shree (1527158)

Group 8
Contents
Contents .................................................................................................................................................................. 1
Executive Summary ................................................................................................................................................ 2
Industry Analysis .................................................................................................................................................... 3
Porter’s 5 force analysis: .................................................................................................................................... 8
Competitors Analysis: ........................................................................................................................................ 8
Internal Analysis ..................................................................................................................................................... 9
External Analysis .................................................................................................................................................... 9
Swot Analysis ................................................................................................................................................... 10
Mission & Vision.................................................................................................................................................. 11
Quantified Strategy Objective .............................................................................................................................. 11
Share price ........................................................................................................................................................ 11
Market Share .................................................................................................................................................... 14
Business Strategy .................................................................................................................................................. 14
Ansoff Matrix (Product / Market Expansion Grid) .......................................................................................... 14
Porters Generic Strategy Matrix ....................................................................................................................... 15
Strategy Implementation ....................................................................................................................................... 16
Eicher Motors Business Plan Valuation ............................................................................................................... 17
Key Assumptions ............................................................................................................................................. 17
Projected Income Statement for Eicher Motors ................................................................................................ 18
Projected Balance Sheet for Eicher Motors ...................................................................................................... 18
Synergy Valuation ............................................................................................................................................ 19
Information of the bidding firm (Eicher) .................................................................................................... 19
Information of the target firm ..................................................................................................................... 19
Free Cash Flows .......................................................................................................................................... 21
Objectives ............................................................................................................................................................. 23
Time Table............................................................................................................................................................ 23
Resources/Capability Evaluation .......................................................................................................................... 24
Management preferences / tactics ......................................................................................................................... 26
Search Plan ........................................................................................................................................................... 27
Negotiation Strategy ............................................................................................................................................. 28
Purchase (offer) Price Estimate ............................................................................................................................ 32
Financing Plan ...................................................................................................................................................... 37
Integration Plan .................................................................................................................................................... 38
Conclusion ............................................................................................................................................................ 38
References ............................................................................................................................................................ 39
Turnitin Report ..................................................................................................................................................... 40
Executive Summary
“Automobile industry is on the raise in the recent years. Currently accounts for 7%of country’s
GDP and employs about 19 million people and India is the 7th largest producer of automobile
in the world. The new govt. initiative of “Make in India” and Increased focus on the
infrastructural development has boosted the opportunity for Eicher motors to apprehend the
market with increased and diversified production. For this there is a need of horizontal
expansion for the company.

Eicher motor is ranked 3rd in medium and heavy vehicle segment. Their product portfolio
includes Trucks, buses and motor cycles. Asa part of diversified growth strategy, we are
proposing the acquisition of Force Motors. The force motor has varied light commercial and
agricultural vehicle portfolios which can enhance the value proposition for Eicher Motors. This
will also help Eicher motors in acquiring larger market share.

We are expecting a good demand for tractors because of normal south west monsoon in the
country.Force motors is a reputed brand in rural areas for Tractors. Also mini Vans of Force
motors will add to the bottom line of the company effectively. We are also expecting a better
synergy as both the company are in same industry and produce somewhat similar product. The
technology can also be acquired from Force Motors which will have long term benefits.”
Industry Analysis
“India is positioned as the largest three wheeler industry with large domestic market and export
base with industry volumes of 940,000 units in FY 2015, India is positioned as the largest
manufacturer as well as market for three wheelers (3W), globally. Over the past decade (i.e.
FY 2006-15), the Indian 3W industry has witnessed a CAGR of 8.9% in unit sales driven by
steadily rising exports as well as domestic demand.”

“Within the overall industry, the domestic 3W market stood at 532,000 units in FY 2015 and
has registered a CAGR of 4.4% over the past ten years. In contrast to domestic demand, exports
of 3W from India have grown at much higher pace (i.e. 20.4%) during the same period. As a
result of this trend, the share of exports in 3W industry volumes has risen from 18% (in FY
2006) to almost 43% (in 10m FY 2016). This trend has been supported primarily by two factors
viz:

Strong demand from international markets on back of rising demand for last-mile connectivity
(owing to lack of well-developed public transport system) in emerging markets in Africa and
South-East Asia and b) declining trend in demand for 3W goods carriers in the domestic market
due to competition from Small Commercial Vehicles (SCVs).

Passenger variant of three wheeler industry accounts for bulk of industry sales
With annual sales volumes of 432,000 units in FY 2015, the passenger carrier segment accounts
for almost 80% of domestic 3W industry sales. Accordingly, the growth drivers of the domestic
3W industry are majorly influenced by factors that drive demand for passenger 3Ws. Over the
past decade (i.e. FY 2006-15), the passenger carrier segment has witnessed a CAGR of 8.2%
driven by increasing demand for last-mile connectivity in metros & major cities,
Improving penetration in tier III/IV towns and rural areas, and

Gradually increasing availability of funding through organized channel. In urban markets,

replacement demand has also been an important growth driver where in improving network of
CNG fuel stations is driving replacement of older petrol or diesel powered 3Ws with ones based
on CNG. Despite the fact that usage of CNG is only mandatory in Delhi, the acceptance for
CNG-based 3Ws has caught up in other cities as well primarily on back of favorable operating
economics.

In the domestic market, Tata Motors sold 290,437 units in 2015 compared to 286,735 units in
2014 to post just 1.29 percent year on year growth.”
“Mahindra & Mahindra, as a result of its outstanding performance in the small commercial
vehicle and pick-up segment, has
become the second largest player
with a market share of 24 percent
in the overall CV segment. During
CY2015, the company sold a total
of 158,588 units against 160,042
units in 2014.

Ashok Leyland, which sold

117,751 units in 2015 as compared
to 83,834 units in 2014, recorded
strong 40 percent growth.

During CY15 the company has

registered tremendous double-
digit growth in the Medium and
Heavy commercial segment
(M&HCV). VE Commercial
vehicle increased its sales by 18 percent, selling 40,411 units. Clearly, the Eicher Pro Series
of trucks was given a new fillip to the company's sales.

Force Motors registered 12 percent growth, selling 22,419 units against 19,990 units in 2014.
While most CV manufacturers saw sales growth in 2015, Piaggio Motors and AMW Motors
saw their sales decline by 21 percent and 55 percent respectively.”

“Eicher Motors is a commercial vehicle manufacturer in India. The company's origins date
back to 1948, when Goodearth Company was established for the distribution and service of
imported tractors. In 1959 the Eicher Tractor Corporation of India Private Ltd was established,
jointly with the Eicher tractor company, a German tractor manufacturer. Since 1965 Eicher in
India has been completely owned by Indian shareholders. The German Eicher tractor was partly
owned by Massey-Ferguson from 1970, when they bought 30%. Massey-Ferguson bought out
the German company in 1973.

In 2005 Eicher Motors Ltd sold their tractors and engines business to TAFE Tractors (Tractors
And Farm Equipment Ltd) of Chennai, the Indian licensee of Massey Ferguson tractors.In
October 1982 a collaboration agreement with Mitsubishi for the manufacture of Light
Commercial Vehicles was signed in Tokyo and in the same period the incorporation of Eicher
Motors Limited also took place. In February 1990, Eicher Goodearth bought 26% stake
in Enfield India Ltd and by 1993 Eicher acquired a majority stake (60% equity shareholding)
in Royal Enfield India.In July 2008, EML and Volvo Group's 50:50 joint venture VE
Commercial Vehicles (VECV) designs, manufactures and markets commercial vehicles,
engineering components and provides engineering design.”

Group Structure:

“The Eicher Group has diversified business interests in design and development,
manufacturing, and local and international marketing of trucks, buses, motorcycles, automotive
gears, and components. Eicher has invested in the potential growth areas of management
consultancy services, customized engineering, and maps and travel guides.VE Commercial
Vehicles (VECV) Limited is a 50:50 joint venture between the Volvo Group (Volvo) and
Eicher Motors Limited (EML).VECV is divided into five business units:

 Eicher Trucks and Buses - The E Series

 Volvo Trucks India - The VE Series
 Eicher Engineering Components
 VE Powertrain
 Eicher Goodearth
  Eicher Publications

“Royal Enfield Motors, the motorcycle manufacturing subsidiary, is a part of the Eicher
Motors.

Force Motors, formerly Bajaj Tempo, is an Indian manufacturer of three-wheelers, multi-

utility and cross country vehicles, light commercial vehicles, tractors, buses and heavy
commercial vehicles.Force Motors started production of the Hanseat three-wheeler in
collaboration with GermanVidal & Sohn Tempo Werke and went on to establish a presence in
the light commercial vehicles field with the Matador, the proverbial LCV (light commercial
vehicle) in India. Bajaj Tempo was associated with Mercedes-Benz since 1976 and in 1982
they began building theMercedes-Benz OM616 diesel engine. Through the 1980s and 1990s,
and especially in the last five years with a major product development effort, Force Motors has
introduced new light commercial vehicles, a facelifted series ofTempo Trax utility vehicles,
new tractors, and a new range of three-wheelers. The Matador, which defined the light
commercial segment in India, saw sales collapsing in the late 1990s and Bajaj Tempo began a
substantial program of developing modern vehicles to replace it.
The company which mainly operates in niche commercial vehicle segment, entered into the
"personal vehicle" segment in August 2011 with the launch of its first SUV, named Force-
One. Tractors are built under the Balwan and Ox (formerly Tempo Ox) brands. The tractor
field was entered by (then) Bajaj Tempo in 1996-1997, and was developed indigenously, rather
than depending on imported technology. In a move away from its long-established business, of
being a Commercial Vehicle maker, Force Motors entered the Personal Vehicles arena with a
Sports Utility Vehicle the FORCE ONE in 2011 and an Extreme Off-Roader Vehicle- the
Gurkha in 2013.
Recently in the year 2015, the company also inaugurated its Chennai Plant which will produce
and test engines and transmissions exclusively for all BMW cars and SUVs made in India. The
IT system of the production facility is integrated in “Real Time” with the global production
network of BMW. This enables all essential production process values to be integrated in
BMW’s global data. The Force Motors plant at Chennai has been developed under supervision
and guidance from the luxury car maker and is according to their exacting global
standards.Force Motors has manufacturing facilities at Akurdi and Ursé (Maharashtra),
Pithampur (Madhya Pradesh) and Chennai (Tamil Nadu). A state of the art manufacturing
facility at Chakan (Maharashtra) will be inaugurated soon.””

Products:
“Force Motors manufactures a range of vehicles including Small Commercial Vehicles (SCV),
Light Commercial Vehicles (LCV), Multi Utility Vehicles (MUV), Sports Utility Vehicles
(SUV), Heavy Commercial Vehicles (HCV) and Agricultural Tractors.
Personal vehicles
 Force One (SUV)
 Force Gurkha

Light Commercial vehicles

  Traveller range of vehicles
 Small Commercial Vehicles
 Trump 40 (SCV)

Multi Utility Vehicles

 Trax

Agricultural vehicles
 Balwan tractors
 Orchard tractors”

Porter’s 5 force analysis:

Competitors Analysis:

Source: Moneycontrol.com
Internal Analysis
“The Internal analysis of Eicher Motors Ltd. will be for

 Identification of business opportunities which could be capitalized upon

 Strategic Planning & Decision-Making Process at all levels

 Identification of potential threats in the business environment

 Assessment & evaluation of responsiveness to the external environment

 Identifying areas for strategic changes & improvements

The analysis will be essential for those having strategic interest in the company & will be
especially useful for key decision makers, top management of companies, suppliers, vendors,
current & potential investors, industry & company analysts & those associated with the
industry or the company.

Strengths

 High profitability and revenue.

 Mergers with competitors.

 Eicher continues to be debt free company.

 Eicher has demonstrated its ability to deliver industry-leading growth across all its
businesses.

Weaknesses

 Production capacity is comparatively less to.

 Tax structure is heavier.”

External Analysis

Opportunities

 “A shift to a high growth path: India to become a US$7 trillion (current market price)
economy by 2025 as in 2016 it is US$3.4 trillion. And expecting a growth in the CAGR
from 8.20% in 2016 to 9.40% in 2025.

 Growth in Urbanisation: In 2015 the total population was 388 million and it is
expected to grow to 425 million in population in 2025.
  Rising share of discretionary spending over the year(%): In 2012 the discretionary
spending was 61%, in 2015 it was 62% and it is expected to grow to 70% by 2025.

 Planning to open: 2 technology centres in Chennai and UK for Royal Enfield’s.

 No. of dealers in India to increase to 600 by end 2016.

 Company will invest in increasing manufacturing capacity, strengthening supply”

Threats
 “Stronger Government regulations for overloading.

 Growing demand in premium domestic segment.

 Higher dependency on logistics.

 Modern technologies, features at mass market prices.

 Rising cost of raw materials.

 Growing competition.”

Swot Analysis
Mission & Vision
Vision - To be recognized as the industry leader driving modernization in commercial
transportation in India and the developing world and to sustain its position as one of India’s
most valuable organizations through world class performance.

Mission – To create growing value for Indian economy and sustainable value for the
stakeholders and continuously improve transportation efficiency in India and developing
markets, thereby reducing logistics costs for goods and people – leading to higher enablement
of specialization in manufacturing, agriculture and services and to be the most respected and
successful automobile company in India, through excellence in service.

Quantified Strategy Objective

Share price
“The financial ratios of Force Motors indicate a positive result and hence, this would be right
company for Eicher Motors to acquire.

Force Motors has an expansion plan for new facilities and product enhancement and the
investment is around 300 crore for the financial year 2017. The company is also targeting a
growth rate of 15-20% for the new expansion that they are undertaking and this could be
advantageous for Eicher motors if it concentrates on this new segment.

The vehicle business of Force Motors has done really well in the last year, especially the
component business. Force Motor’s total income from operations was Rs 910.77 crore in 2016
versus Rs 702.93 crore for the year 2015, indicating a growth of 28 per cent YoY. Therefore,
by acquiring Force Motors, Eicher will be able to increase its revenue at least by 25%.

Also, if we consider the current market situation Force Motors will be able to achieve a growth
rate of 32% over the next few years. By 2020 Eicher Motors will be able to achieve 35% growth
rate. Eicher Motors have a current market share less than that of Tata Motors. By acquiring
Force Motors, Eicher will stand out as a strong competitor and in future the entity will be able
to achieve a larger market share in all segments (LCV, MCV and HCV) and will become the
market leader.

The tempo traveller segment of Force Motors is the market leader and currently eicher does
not have this segment. Through this acquisition the company not only gets to enjoy the share
of this new segment but it also gets to plants available with Force Motors wherein they have
recently expanded the capacity of the plant. This will help Eicher in varied ways for doing
business as Force Motors has recently set up a new engine manufacturing facility near Chennai,
for BMW cars.”
From the above table we can observe that Force Motors has been doing well consistently, this
is because the sales of all segments of Force Motors have been increasing at a faster rate.
Market Share

Business Strategy

Ansoff Matrix (Product / Market Expansion Grid)

“Eicher Motors existing products are Medium and Heavy Commercial Vehicles and two
wheeler, in which the medium and heavy commercial vehicles includes like trucks and buses,
which caters to the need of the medium and heavy Commercial Market Segment.

Force motors existing products are Light Commercial Vehicles and agricultural vehicles which
includes 12, 16 seater cabs and tractors which caters mostly to the Light Commercial Market
segment.

When Eicher motors plans to acquire the Force motors, there will be a new product introduction
which will be Light Commercial Vehicles and also the market in which it has expanded is the
light commercial vehicle segment, thereby according to the Ansoff matrix the strategy we are
adopting here is the partial diversification.

As far as the riskiness in the acquisition is concerned, there will be a medium risk as it is risky
for Eicher motors for managing the new product line and it is quite safe at the same time as
they are in the business which are they are familiar.”

Porters Generic Strategy Matrix

“As Eicher Motor is going to acquire the Light Commercial Vehicle segment where the
bargaining power of buyer is medium they will focus on product uniqueness. Therefore the
best strategy for competitive advantage is focus strategy which is also called focused
differentiation.
As the intensity of the competition is more they will be keeping a check on the price of the
competitors, however being commercial segment uniqueness is valued more than pricing
strategies.

Moreover focus (strategy differentiation) involves contribution of distinctive features which

appeals to a range of consumers, the necessity to fulfill the needs of a narrow segment of market
denotes that the quest for uniqueness is taken to the “next level” by companies following
focused differentiation strategy.”

Strategy Implementation
“As we are looking to move our business ahead and forward by adding more customer base,
we can consider “Strategic Acquisition” of Force Motors.

We believe that we can buy the company at a reasonable price. We are sure that with the
“Strategic Acquisition” of the Force motors, we can build higher synergy which can actually
help us in reducing the total cost of running both the businesses together and we will be able
to create more value for the combined company and increase our shareholder’s wealth.

As far as Acquisition strategy is concerned, we believe that by acquiring Force motors, we are
creating an opportunity where “Whole will exceed the sum of the parts”
Some of the major advantages of implementing the Acquisition strategy:

This will add value to the combined unit by removing the redundant functions and will help in
increasing overall revenue for the company.”
We can take advantage of the additional distribution channel at northern parts of India, which
we will get by acquiring Force Motors.

By acquiring Force Motor, we will be having a hold in Low Commercial Vehicle segment
which will help in reducing the overall seasonal fluctuation we see with heavy commercial
vehicle segment and vice-versa.The acquisition strategy will lead to a better utilization of
“Resource&Capabilities.”

JOINT VENTURE:
“Since both the companies have major target segment in the same geography and both the
company caters to the same segment of population, Joint Venture doesn’t seem to be right
strategy to go for.

Also, we do not want to lose any control of the company, so Joint Venture doesn’t is not
feasible.”
MINORITY INTEREST:

“Minority interest will not give any controlling power to Eicher Motors. As we want to add
LCV to our product portfolio. By having minority interest we can only share some portion of
profit of Force Motors. This will not add to the synergy and Clientele base of Eicher Motors.”

Eicher Motors Business Plan Valuation

In forecasting the financial metrics below, we relied on information we sourced from Eicher
Motor‘s audited financial statements from the previous four years.

Key Assumptions
Raw material as % of Sales 65.18%
Employee Benefit Expenses as % of 7.46%
Sales
Finance Cost as % of Sales 0.11%
Depreciation as % of Sales 2.49%
Other Expenses as % of Sales 13.54%
Tax as a% of PBT 30.00%
Revenue growth 11.07%
Fixed Asset growth 2.00%
Non Current Assets growth -5.00%
Current Assets growth 10.00%

Projected Income Statement for Eicher Motors

YEAR 31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar-
17 18 19 20 21
Total Revenue
13,336.91 14,813.30 16,453.14 18,274.50 20,297.49
EXPENSES
Cost Of Materials Consumed
8,693.47 9,655.84 10,724.74 11,911.97 13,230.62
Employee Benefit Expenses
994.55 1,104.65 1,226.93 1,362.75 1,513.61
Finance Costs
14.75 16.38 18.19 20.20 22.44
Depreciation And Amortisation
Expenses 331.43 368.12 408.87 454.13 504.40
Other Expenses
1,806.13 2,006.06 2,228.13 2,474.79 2,748.75
Total Expenses
11,840.32 13,151.04 14,606.86 16,223.84 18,019.82
Profit/Loss Before Tax
1,496.59 1,662.26 1,846.28 2,050.66 2,277.67
Total Tax Expenses
448.98 498.68 553.88 615.20 683.30
Profit/Loss For The Period
1,047.61 1,163.58 1,292.39 1,435.46 1,594.37

Projected Balance Sheet for Eicher Motors

31-Mar-17 31-Mar-18 31-Mar-19 31-Mar-20 31-Mar-21
EQUITIES AND LIABILITIES
Total Share Capital
27.10 27.10 27.10 27.10 27.10
Reserves and Surplus
1,047.61 1,163.58 1,292.39 1,435.46 1,594.37
Total Shareholders Funds
1,074.71 1,190.68 1,319.49 1,462.56 1,621.47
Minority Interest
1,085.06 1,085.06 1,085.06 1,085.06 1,085.06
NON-CURRENT LIABILITIES
Total Non-Current Liabilities
332.34 335.66 339.02 342.41 345.83
CURRENT LIABILITIES
Total Current Liabilities
2,725.36 2,997.90 3,297.69 3,627.45 3,990.20
Total Capital And Liabilities
5,217.47 5,609.30 6,041.26 6,517.49 7,042.56
ASSETS
NON-CURRENT ASSETS
Fixed Assets
2,782.69 2,838.35 2,895.11 2,953.02 3,012.08
Total Non-Current Assets
614.02 583.32 554.16 526.45 500.13
CURRENT ASSETS
Total Current Assets
1,820.76 2,187.64 2,591.99 3,038.02 3,530.36
Total Assets
5,217.47 5,609.30 6,041.26 6,517.49 7,042.56

Synergy Valuation
Information of the bidding firm (Eicher)
Current Financial Information
Revenues in current year = 12007.66
COGS as % of Revenues = 66%
Tax Rate on income = 30%
Interest Expenses = ₹
8.06
Current Depreciation = ₹
343.09
Current Capital Spending = ₹
201.92
Working Capital as % of Revenue = 6.00%
Projections of growth in earnings
Expected growth rate - next 5 years = 11.07%
Expected growth rate - after 5 years = 20.00%
Risk measures
Beta of the stock = 0.70

Information of the target firm

Current Financial Information
Revenues in current year = $3,031.69
COGS as % of Revenues = 76.00%
Tax Rate on income = 28.00%
Interest Expenses = ₹ 4.32
Current Depreciation = ₹ 91.93
Current Capital Spending = ₹ 131.60
Working Capital as % of Revenue = 6.00%
Projections of growth in earnings
Expected growth rate - next 5 years = 11.07%
Expected growth rate - after 5 years = 13.00%
Risk measures
Beta of the stock = 1.33

General
Information
Current riskfree
rate = 7.50%
Risk premium over risk-free rate = 5.50%

Information on Synergy benefits

What form does the synergy benefit (1: Cost reduction ; 2:Cost reduction and Increase
take? 3 growth: 3: Only increase growth)

I. The cost of goods sold without

synergy is 68.02%
If the synergy is going to reduce costs, enter the
new cost of goods sold

IIa. The growth rate in earnings in the next five

years without synergy is 11.07%
If the synergy will increase growth, enter the new
growth rate 20.00%

IIb. The growth rate after year 5 is expected to be 19.04%

If the synergy will increase this growth rate, enter
the new growth rate 15.00%
 Bidder Target A+B: No synergy A+B
(Synergy)

Free Cash flow 2921.55 462.97 3384.51 3384.51

to Equity

Growth rate for 11% 11% 11.07% 20.00%

first 5 years

Growth rate 20% 13% 19.04% 15.00%

after five years

Beta 0.70 1.33 17.53 17.53

Req. rate of 11.35% 14.82% 103.93% 103.93%

return

Risk-free Rate 7.50%

Free Cash Flows

FCF Term Val FCF Term. Val FCF FCF TV

YEAR (A) (A) (B) (B) (A+B) TV (A+B) (A+B:S) (A+B:S)
1 3244.96 514.22 3759.18 4061.41
2 3604.18 571.14 4175.32 4873.70
3 4003.16 634.37 4637.53 5848.44
4 4446.31 704.59 5150.90 7018.12
-
5 4938.52 68511.20 782.59 48723.09 5721.10 -19788.11 8421.75 10891.1218
PRESENT -
VALUE 25525.18 26517.71 3293.25 4806.67

Gains from synergy = 1513.42

Most that bidder firm can bid for target = 28031.12
% Premium over the market price = 5.71%
Acquisition Plan
Objectives
“The general objective is to acquire a diversified portfolio company. Eicher motors offers to
acquire the diversified Force motors into a single and more successful brand. Force motors
have a varied light commercial and agricultural vehicle portfolios which can enhance the value
proposition for Eicher Motors.

 An acquisition of Eicher motors would help them to enter into the light and commercial
vehicles.
 This could lead to a strong synergy through the coupling of the Eicher Motors rapid
market growth and Force Motors efficient and diversified distribution and capacity
networks.
 This would help Eicher Motors in acquiring larger market share.
 For Force Motors this is coupling of diversification and growth opportunity.
 A good demand for tractors in the normal south west monsoon in the country would
also enhance the sales of tractors thereby adding valus to the firm.
 Also mini Vans of Force motors will add to the bottom line of the company effectively.
 The technology can also be acquired from Force Motors which will have long term
benefits”

Time Table

KEY EVENT BEGINNING DATE ENDING DATE

Planning Objectives 10th December , 2016 13th December , 2016

specifically

Search for considerable 20th December, 2016 25th December, 2016

candidate

Proposal of Merger to CEO 3rd January, 2017 -

of target firm

Negotiation & Closing deal 15th January, 2017 -

Financing Planning 20th January, 2017 5th February ,2017

Integration 10th February, 2017 28th February,2017

Resources/Capability Evaluation
“Firm‘s available resources usually consist of internal resources available; sources from debt
market and sources from equity market.

1. Internal resources

Internal resources of the company are basically internally generated cash flows in excess of
normal requirements. To assess Eicher Motor’s cash burn requirements and cash build capacity
several financial documents were examined.

Eicher Motor’s cash account has been steadily increasing over the past 3 years.

(Rs. crore) 2016 2015 2014

Cash and cash equivalents 44.52 43.05 18.71

Short-term investments 709.78 917.09 825.41

Total cash 754.3 960.14 844.12

The company‘s cash burn and cash build in past five years can be roughly determined as
following:

($ million) 2016 2015 2014

COGS 3423.41 1819.08 1079.23

Inventory 300.36 205.13 143.84

Change in inventory 95.23 61.29 -

Other operating expenses 693.68 329.12 218.01

Interest expense 1.41 1.67 0.27

Payables 742.55 490.24 321.42

Change in payables 252.31 168.82 -

 Gross plant and equipment 845.71 488.65 287.97

Capital Investments 33.31 42.67 8.47

Taxes 539.73 239.11 84.53

Net sales 6163.19 3014.71 1695.39

Receivables 46.13 10.70 12.13

Change in receivables 35.43 (1.43) -

Cash Burn 4893.95

Cash Build 6209.32

Net Cash Burn

Excessive Cash 1315.7

The table above shows that Eicher Motors in the past three years has been generating cash that
is more than the need of the company. This cash can be used as a source of funds for purchasing
a new company.

2. Debt market sources

As of today around Long-term debt/Equity ratio for Eicher Motors is equal to 4.62. Company‘s
long-term debt as of 2016 debt was Rs. 5.87 crores and the company‘s equity was Rs. 27.16.
While TCCC‘s Debt/Equity is about 4.62; the industry average is almost 3 so the company has
extra borrowing capacity.

3. Equity market sources

The company’s shareholding pattern is as follows:

Ownership %

Promoters Group 54.87%

FII's 28.86%

DII's 3.18%

Others 13.09%

Total 100%

Eicher Motors shares price experienced a relatively stable growth over the last decade as it shown in
the table below.
 2016 2015 2014 2013

Stock Price 19180.60 14898 4889 2836

The research also showed that shares of many potential target companies were help by the same
shareholders as the shares of Eicher Motors.”

Management preferences / tactics

“By focusing on the acquisition strategies that have created value for acquirers in the past,
managers can make it more likely that their acquisitions will create value for their shareholders.
While markets do throw up occasional opportunities for companies to buy targets at levels
below their intrinsic value. To gain control of a target, acquirers must pay its shareholders a
premium over the current market value. Although premiums can vary widely, the average ones
for corporate control have been fairly stable: almost 30% of the preannouncement price of the
target’s equity. For targets pursued by multiple acquirers, the premium rises dramatically,
creating the so-called winner’s curse. If several companies evaluate a given target and all
identify roughly the same potential synergies, the pursuer that overestimates them most will
offer the highest price. Since it is based on an overestimation of the value to be created, the
winner pays too much—and is ultimately a loser.

This is a well-priced friendly takeover as hostile takeover typically reduces potential synergy,
creates negative publications, and tends to increase the takeover costs. Friendly takeovers
reduce the likelihood of employee turnover in the acquired companies, thus reducing the need
to find and retrain new employees. Unless natural attrition is desired, low employee turnover
and positive employee’s moral in the acquired company can help speed up the integration
process. However, for one reason or another, there are companies that refuse to be acquired
even though they are offered a satisfying price. In such case, if further reassessments indicate
that acquiring the company is critical, hostile takeover is the only option.

Reducing excess in an industry can also extend to less tangible forms of capacity. Consolidation
in the automobile industry, for example, has significantly reduced the capacity of the sales
force as the product portfolios of merged companies change and they rethink how to interact
with dealers. Automobile companies have also significantly reduced their R&D capacity as
they found more productive ways to conduct research and pruned their portfolios of
development projects.

Approximately 40 percent of Ford motors existing revenue aligns with Eicher motors
infrastructure-focused business segments and will be rapidly integrated into the core Ford
organization, processes and systems. The remainder, which is a valuable and viable cash-flow
generating business, has a customer base that aligns well with Ford and voice businesses.

Eicher expects to achieve significant revenue and cost synergies over the coming quarters,
driven by the efficiencies of scale and achieved via Ford proven, streamlined integration
process. Eicher Tranzact platform and Salesforce.com implementation will provide seamless
online access to viewing, purchasing and managing the combined customers and network.

Eicher anticipates more than $40 million in annual cost synergies to be realized throughout the
integration process and will benefit from more than $400 million in net operating loss carry
forwards acquired in the transaction. Ford expects to close in the first calendar year quarter of
2017, subject to customary regulatory approvals and closing conditions. The transaction will
be funded with a combination of cash on hand and debt.”

Search Plan

Companies Current Price Market Cap. Net Profit Total Assets

Ashok 74.75 21258.70 721.78 7498.49
Leyland
Force Motors 3848.45 5070.82 179.42 1483.09
Swaraj 1090.75 1582.04 51.16 132.49
Mazda Ltd
Eicher 22756.20 61905.02 1309.52 2173.35
Motors
(₹ in cr)

Companies Ashok Force Motors Swaraj Mazda Eicher Motors

Leyland Ltd
Type of the Public Public Public Public
company
Key products Automobiles, e Trax, Traveller, Trucks, buses, amb Commercial
ngines, comme Trump, Force ulances, police vehicles, engine
rcial vehicles One, Balwan personnel carriers,
tractor water tankers
and special
vehicles
Revenue ₹20658 crore ₹1480 Crore ₹10981crore ₹11,923 crore
Market share 18.6% 3.37% 0.16% 6.46%
Growth in 30% 20% 12.2% 28%
FY15-16
Dividend 1:0.95 1:5 1:8 1:10

Ashok Leyland:
“Ashok Leyland is an Indian automobile manufacturing company headquartered in Chennai,
India. Founded in 1948, it is the 2nd largest commercial vehicle manufacturer in India, 4th
largest manufacturer of buses in the world and 16th largest manufacturer of trucks globally.

Ashok Leyland has presence in the entire truck range starting from 7.5 tons to 49 tons. With a
joint venture with Nissan Motors of Japan the company made its presence in the Light
Commercial Vehicle (LCV) segment (<7.5 tons).

Force Motors:
Force Motors, formerly Bajaj Tempo, is an Indian manufacturer of three-wheelers, multi-utility
and cross country vehicles, light commercial vehicles, tractors, buses and heavy commercial
vehicles. It was originally named Firodia Tempo Ltd. and later after partial acquisition by Bajaj
Auto as Bajaj Tempo Ltd.

The Company produces “working vehicles” and not personal usage vehicles. While the
personal transportation vehicle segments have been growing rapidly - such as personal
passenger cars and 2-wheelers, the growth of commercial vehicles is tied very greatly to the
situation of economic growth and transformation occuring in India. Another factor affecting
the sale of passenger vehicles for hire and reward is government‘s policies relating to
categorisation of vehicles, applicable excise duty structure, permit regime, permit charges,
facilities for operating in specific territories, etc. In this regard the new Motor Vehicles Act
may improve the conditionalities under which vehicles ply for hire and reward, to facilitate
convenient, easy and safe transportation. If such an effect does occur, this sector in which the
company operates, would see significant improvement in its market opportunities. Excise duty
rationalization is a major concern.

Swaraj Mazda Ltd:

Established in 1983, Swaraj Mazda Limited, a Chandigarh, India based automobile company,
is owned by the Sumitomo Corporation of Japan and Punjab Tractors Limited of India, with a
technical collaboration with Isuzu and Mazda of Japan”

Negotiation Strategy
“As part of the plan of Eicher Motors to acquire Force Motors, the proposed deal structure is
such that it should help the acquiring company i.e. Eicher Motors to meet its financial and
marketing objectives while also satisfying Force Motor’s highest priority objectives. While
Force expects a decent high price for being sold, Eicher’s expectation is a reasonable price for
this purchase. In such a case a proper negotiation strategy is required. In order to paying a
reasonable purchase price, Eicher’s highest priority objective is to protect the company from
Force’s contingent liabilities. While doing so, Eicher also desires maximum employee retention
of Force and non-compete agreements. On the other hand, Force’s highest priority objective
would be to maximize the purchase price which is why Eicher is proposing upto 33% purchase
price premium. Additionally Force would like to sell of its liabilities and retain its key
employees.
As we are looking to move our business ahead and forward by adding more customer base, we
can consider “Strategic Acquisition” of Force Motors.

We believe that we can buy the company at a reasonable price. We are sure that with the
“Strategic Acquisition” of the Force motors, we can build higher synergy which can actually
help us in reducing the total cost of running both the businesses together and we will be able
to create more value for the combined company and increase our shareholder’s wealth.

As far as Acquisition strategy is concerned, we believe that by acquiring Force motors, we are
creating an opportunity where “Whole will exceed the sum of the parts”.

The proposed deal structure consists of the following key elements- (1) Proposed acquisition
vehicle; (2) post-closing organization; (3) form of payment; (4) form of acquisition; and (5) tax
structure.

1. Proposed Acquisition Vehicle

Taking into account certain legal, financial, tax, and other practical considerations, a holding
company would be the most appropriate acquisition vehicle for this transaction. In light of
recent events and Force‘s pending and threatened litigation, Eicher‘s highest priority objectives
with respect to an acquisition vehicle, include minimizing the risks and insulating the company
from Force‘s known and unknown contingent liabilities.

There is a litigation going on between Force Motors and its workers’ union over recognition
and the case is pending in the Supreme Court. The industrial dispute is regarding who among
the two rival unions will represent the workers— the Bharatiya Kamgar Sena (BKS) and the
Pune Employees Union (PEU)-AITUC. Earlier, BKS was the recognized union which was then
challenged by the PEU. This case has moved the ladder from the lower industrial court to the
high court and ultimately in 2009 the case went up to the Supreme Court.

Moreover, on Sep 1 there was a report regarding six women who went on hunger strike for
indefinite time. These six women were protesting against the pay that they were receiving and
there was no hike in pay since last 10 years. According to the reports, their health was
deteriorating but the company’s management was adamant on their move and decided not to
negotiate any terms with them.

Even though Force claims that such litigation is not likely to have any material adverse effect
on the company‘s financial position or results of operations, it is impossible to predict the
outcome of such litigation. As such, Eicher needs to structure the acquisition of Force in a risk
adverse manner.

Now, speaking of the holding company, Eicher shall adopt such a framework to acquire Force,
which will be structured as a C-type corporation (“C-Corp”). The benefits of a C-Corp in a
holding company framework include the following: (1) shares are easily transferrable, (2)
shares are easily exchangeable, and (3) facilitation of easy consolidation with the parent
company.
Even though partnerships and joint ventures provide channel for sharing risk and insulating the
acquirer from the target‘s liabilities, a holding company is preferred for this transaction and
there are reasons behind taking such decision. First of all, Eicher wants effective control over
Force. Secondly, there is substantial equity in Force‘s brand name in both the leading bourses
of India- NSE and BSE and a holding company will be the least disruptive to its current identity.
Third, this acquisition vehicle minimizes the reporting requirements to shareholders that would
be required if Eicher sets up an LLC or LLP.

On the other hand, this acquisition vehicle has potential drawbacks also as a holding company
structure can create tax problems for shareholders and could subject Force‘s operating earnings
to triple taxation. Eicher however, has structured the deal in such a way that it may be treated
as a non-taxable event. Tax related considerations are addressed in the following sections.

2. Post-closing organization
The post-closing organization will be a wholly owned subsidiary that continues to operate as a
C-Corp. Eicher will acquire all of Force‘s stock, which will be retired by then. A wholly owned
Force subsidiary is preferred to a partially owned subsidiary with respect to control. By owning
100% of Force, Eicher will gain exclusive control of the management and eliminate the threat
of dissident minority shareholders. An additional benefit to this structure is that it facilitates
the spinoff of certain assets of Force that may be needed to be sold off in the future. It also
maintains the integrity in the Force organization. It will assist in the financial reporting and
related incentive compensation packages with respect to the operation of the monster brand.

A subsidiary is a more appropriate post-closing organization than a corporate or divisional

structure because of the following reasons. First, subsidiaries afford greater protection from
Force‘s known and unknown liabilities. Second, subsidiaries allow for the decentralized
management, where the sub has its own management team. As discussed in the Implementation
Strategy section, Force’s management has been successful with its products. As such, this
acquisition is more likely to create greater value if Force‘s key employees run its operations
also. Third, Eicher will be able to benefit from any goodwill and brand recognition attached to
Force‘s name that it would not otherwise reap if Force lost its corporate identity as a corporate
or divisional structure.

3. Form of payment
The form of payment for this acquisition is valued at Rs. 28031.12 crores and the deal involves
50% in cash, 25% in stock and 25% in debt. Given Eicher‘s increasing cash balance and the
potential for near-term earnings per share dilution if not invested, Eicher will seek to finance
50% of the deal with cash and cash is also preferable. Being the acquired company, Force
would likely want to receive some cash out of the deal from the transaction, especially if there
are older shareholders. Eicher shall include a proration clause in the merger agreement and that
would fix the total amount of cash they will ultimately pay out to acquire Force. This will help
in eliminating the uncertainty that exists when using combined forms of payment.

25% of this deal will be financed by the issuance of common stock. A stock for stock
transaction would satisfy the objectives of Force‘s shareholders with respect to taxes. By
receiving some stock, they will be able to defer tax liability until and unless they decide to sell
their shares. Eicher seeks to use stock as a form of payment because its current stock price is
exceptionally high. Moreover, issuing stock will provide the key to retaining employees at
Force with an incentive to work hard and help facilitate smooth integration of both companies.
The parties should enter into a collar arrangement in order to be ready in the event of any
material adverse changes in either party‘s common stock price prior to public announcement
of this transaction.

The final 25% of this transaction will be financed in debt. Eicher has several options with
respect to debt financing; however, Eicher should obtain a secured loan for this acquisition.
Since Eicher has a good credit rating score, they would be able to get the loan at a very low
interest rate. By leveraging this transaction, Eicher will get a greater return on its investment.
Eicher will not seek to enter into an earn-out agreement with Force. Both Eicher and Force are
large publicly traded firms and so an earn-out would not be feasible in this transaction. Even
though the size of both the companies and their respective shareholders is such that it drives
the primary reason for foregoing an earn-out, Eicher will use this as a form of leverage in
negotiations. Eicher may argue that it is shouldering all of the risk in the transaction and has
not attempted to pass any of that risk onto Force through an earn-out. As such, the purchase
price should reflect Eicher‘s assumption of risk.

Assuming that there is a gap between Force‘s price expectations and the offer price, Eicher can
use employment agreements as another form of payment to close that gap. Employment
agreements will prove to be beneficial to both companies as Force would want to protect its
key employees and Eicher would benefit from retaining such employees (see Integration plan).
Eicher should use employment agreements to show that it contains common interests with
Force and the transaction can proceed in a non-hostile manner. This is not to say, however, that
employment agreements should not also be used as leverage in Eicher‘s favor as they are a
liability.”

4. Form of acquisition
“The form of acquisition between Eicher and Force is a stock acquisition using a combination
of stock and cash for Monster stock and also 25% debt. In determining how ownership will be
conveyed from acquirer to target shareholders, Eicher can either: (1) make a tender offer to
Force‘s shareholders; or (2) complete the merger with Force. The first option is appealing
because it eliminates the need for a Force shareholder meeting. It also minimizes the number
of third-party consents and also other transfer approvals because the target‘s licenses, contracts
and assets are not being transferred to a new entity. However, it is unlikely that Eicher will
tender 100% of their shares and will likely end up with Force as a partially owned subsidiary,
as opposed to a wholly owned subsidiary. In contrast, in a merger, the buyer acquires 100% of
the target, assuming that the requisite vote of target shareholders is obtained. Because Eicher
wants to own 100%, a tender offer is too risky here and a merger structure is the preferred
method of conveying ownership.

More specifically saying, a reverse triangular merger shall be employed here, in which the
acquisition subsidiary will merge into Force, with Force being the surviving organization. This
structure minimizes the need to obtain new contracts or assign Force‘s rights under existing
agreements. By choosing this option, Eicher will not have to deal with dissident minority
shareholders. With respect to timing considerations, Eicher does not anticipate any other offers
from other bidders and so it has sufficient time to complete the merger.

5. Tax structure
This reverse triangular merger, for tax purposes, shall be treated as a taxable purchase of stock.
As a general rule, any merger of the target with the buyer or a subsidiary for cash or other
property, other than stock of the buyer, is deemed to be a taxable transaction. Force will
recognize a taxable gain or loss on the appreciation or depreciation in the value of its stocks,
which would be equal to the difference between the sale proceeds and Force's tax basis in the
stock. The tax basis of the assets held by Force will not be affected by the stock sale. Thus, the
assets held by Force are not subject to a step-up basis and a stock sale will not trigger additional
amounts of depreciation or amortization following the transaction.

Even though this transaction satisfies the Internal Revenue Code Section 338 of election
requirements, no election shall be made because the additional tax liability exceeds the present
value of the tax savings from the step-up in the tax basis of the net acquired assets. As such,
the values of Force‘s assets and liabilities will be consolidated with Eicher‘s financial
statements after the acquisition, based upon the historical tax basis of the assets. The purchase
price reflects Eicher‘s loss with respect to the additional tax savings that would have resulted
from acquiring assets and writing them up to fair market value.”

Purchase (offer) Price Estimate

Force Motor’s Standalone Valuation

1. Key Assumptions for Income Statement are as follows
Revenue Growth 5%
Cost Of Materials Consumed 68% of sales
Employee Benefit Expenses 11% of sales
Finance Costs 1% of sales
10% of total fixed
Depreciation And Amortisation Expenses assets
Other Expenses 12% of sales
Tax as a % of PBT 28%

 Every year the revenue of Force Motors is expected to increase by 5%. This figure is
arrived after tracing last five years revenue growth and its trend.
  The expenses are expressed in percentage of sales. The percentage is taken on the basis
of last 4 years average rate of expenses as a percentage of sales

 Tax is considered to be at the rate of 28%. The figure is arrived by tracing the past
record of total tax expenses paid as a percentage of sales

2. Key Assumptions for Balance Sheet

Fixed Asset
Non Current Assets
Current Assets
Non Current Liabilities
Current Liabilities
2% increase each year
-5% decrease each year
12% increase each year
1% increase each year
25%

60% of last years + current years

Reserves and Surplus
profits
Minority Interest No change

The percentage decrease in assets and liabilities is arrived at after analysing the past
performance of the company and estimating how the company would progress after this
merger. We have considered a very optimistic approach, wherein we believe that the outcome
of this project will be successful as the consolidating company is creating synergy. The synergy
valuation is indicated in the above points.
 3. The Projected Income Statement of Force Motors is as follows-
in Rs. Cr.
INCOME Mar-13 Mar-14 Mar-15 Mar 16 1-Mar-17 1-Mar-18 1-Mar-19 1-Mar-20 1-Mar-21
Total Revenue 2,016.69 2,081.90 2,429.88 3,131.58 3288.159 3452.56695 3625.195298 3806.455062 3996.777815
EXPENSES
Cost Of Materials Consumed 1,408.76 1,416.04 1,641.04 2,172.45 2235.95 2347.75 2465.13 2588.39 2717.81
Employee Benefit Expenses 262.32 240.56 277.73 303.69 361.70 379.78 398.77 418.71 439.65
Finance Costs 8.25 9.18 6.55 4.32 32.88 34.53 36.25 38.06 39.97
Depreciation And Amortisation Expenses 70.16 84.84 81.28 91.93 394.58 414.31 435.02 456.77 479.61
Other Expenses 247.77 268.32 297.96 309.56
Total Expenses 1,997.26 2,018.94 2,304.56 2,881.95 3025.11 3176.36 3335.18 3501.94 3677.04
Profit/Loss Before Tax 19.44 62.96 125.32 249.62 847.03 889.38 933.85 980.54 1029.57
Total Tax Expenses 4.95 -14.96 23.7 69.97 237.17 249.03 261.48 274.55 288.28
Profit/Loss For The Period 14.49 77.92 101.62 179.65 609.86 640.35 672.37 705.99 741.29

4. The Projected Balance Sheet of Force Motors is as follows

EQUITIES AND LIABILITIES Mar-13 Mar-14 Mar-15 Mar 16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
SHAREHOLDER'S FUNDS
Total Share Capital 13 13 13 13 13 13 13 13 13
Reserves and Surplus 1,141 1,215 1,306 1,469 1,491 1,535 1,593 1,662 1,739
Total Shareholders Funds 1,154 1,228 1,319 1,482 1,505 1,548 1,607 1,675 1,752
Minority Interest 1 1 1 1 1 1 1 1 1
Total Non-Current Liabilities 96 52 61 97 98 99 100 101 102
Current Liabilities 275 325 433 447 896 1,120 1,400 1,750 2,187
Other Current Liabilities 185 169 162 271 910 757 556 300 (24)
Total Capital And Liabilities 1,711 1,775 1,975 2,298 3,410 3,525 3,664 3,827 4,019

ASSETS
Fixed Assets 1,018 1,018 1,018 1,018 1,018
887 926 978 1,080
Non-Current Assets 1,026 974 926 879 835
Total Current Assets 824 849 997 1,218 1,366 1,533 1,720 1,930 2,165
Total Assets 1,711 1,775 1,975 2,297 3,410 3,525 3,664 3,827 4,019
 5. Combined Firms Consolidated Income Statement

INCOME Mar 16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21

Total Revenue 15,139 16,625 18,266 20,078 22,081 24,294
EXPENSES
Cost Of Materials Consumed 9,999 10,929 12,004 13,190 14,500 15,948
Employee Benefit Expenses 1,199 1,356 1,484 1,626 1,781 1,953
Finance Costs 18 48 51 54 58 62
Depreciation And Amortisation Expenses 390 726 782 844 911 984
Other Expenses 1,936 1,806 2,006 2,228 2,475 2,749
Total Expenses 13,542 14,865 16,327 17,942 19,726 21,697
Profit/Loss Before Tax 1,597 1,760 1,938 2,136 2,355 2,597
Total Tax Expenses 474 686 748 815 890 972
Profit/Loss For The Period 1,123 1,073 1,191 1,321 1,465 1,626

6. Combined Firms Balance Sheet

EQUITIES AND LIABILITIES Mar 16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21

SHAREHOLDER'S FUNDS
Total Share Capital 40 40 40 40 40 40
Reserves and Surplus 3,958 4,032 4,223 4,499 4,841 5,240
Total Shareholders Funds 3,998 4,073 4,264 4,539 4,881 5,280
Minority Interest 1,087 1,087 1,087 1,087 1,087 1,087
Total Non-Current Liabilities 426 430 434 439 443 448
Current Liabilities 3,194 3,621 4,118 4,697 5,377 6,177
Other Current Liabilities 929 999 863 635 326 (68)
Total Capital And Liabilities 9,634 10,210 10,765 11,397 12,113 12,924

ASSETS
Fixed Assets 3,726 3,801 3,856 3,913 3,971 4,030
Total Non-Current Assets 1,726 1,640 1,558 1,480 1,406 1,335
Total Current Assets 4,182 4,769 5,351 6,004 6,737 7,559
Total Assets 9,634 10,210 10,765 11,397 12,113 12,924
Valuation for Force Motors
“This is done as per the synergy valuation that was done as per the business plan.

7. Purchase Price Range for Eicher

Based on the expected synergies from the acquisition, which is discussed in the previous
section, the purchase price range is supposed to be between 28031.12 crores to 4806.67 crores.
The expected value of the synergy from this acquisition is 1513.42 crores and the price depends
on how much of the synergy Eicher Motors wants to give to Force Motor’s shareholders. We
believe that Force Motor’s shareholders should acquire 22% of the synergy, which results in
5.71% premium over the market price.

The form of payment will be done by 50% cash, 25% in stock and 25% in debt. The reason for
this and also the way the deal will be financed is already mentioned in the Negotiation Strategy
and Capability Evaluation.
A complete discussion of the composition and the price is in the next section “Financing Plan”.

Sources of Synergy (Potential Sources and Destroyers of Value)

1. Sales- The sales are expected to increase because Eicher Motor will be able to introduce
new range of products after acquiring Force Motors. The combined firms revenue is
expected to increase between 5% and 11%. Eicher motors has a huge market presence
and this will help Force Motors to take advantage of this and increase its presence
globally.

2. COGS- Both Eicher Motors and Force Motors have many suppliers for procuring raw
material. The combined firm will have a different range of suppliers and therefore they
will be able to negotiate appropriately and this in turn will help in reducing the cost.

3. Acquisition and Integration Cost- To complete the acquisition, Eicher Motors has to
pay different costs, including feasibility study cost, due diligence costs, legal costs,
integration costs, and training costs. It is hard to precisely calculate these costs;
therefore, we looked for a comparable acquisition to get a clue about these costs. The
best comparable acquisition that we found was the acquisition of Harris Performance
Products Limited, (one of the leading experts in designing, manufacturing and
marketing motorcycle chassis and components). Eicher Motors paid more than 2000
crores acquire Harris in May 2015. This acquisition is relatively recent and is almost
the same size of Force Motors acquisition.

In Harris acquisition, Eicher Motors had to pay more than 4000 for integration costs. Therefore,
we believe the integration costs related to the acquisition of Monster will be in line with this
number.

Results of Acqusition
Based on the explained synergies above, the acquisition will create a synergy of 1513.42 crores
This will improve EPS for Eicher Motor’s shareholders. “
Financing Plan
“The form of payment for this acquisition is valued at Rs. 28031.12 crores and the deal involves
50% in cash, 25% in stock and 25% in debt. Given Eicher‘s increasing cash balance and the
potential for near-term earnings per share dilution if not invested, Eicher will seek to finance
50% of the deal with cash and cash is also preferable. Being the acquired company, Force
would likely want to receive some cash out of the deal from the transaction, especially if there
are older shareholders. Eicher shall include a proration clause in the merger agreement and that
would fix the total amount of cash they will ultimately pay out to acquire Force. This will help
in eliminating the uncertainty that exists when using combined forms of payment.

25% of this deal will be financed by the issuance of common stock. A stock for stock
transaction would satisfy the objectives of Force‘s shareholders with respect to taxes. By
receiving some stock, they will be able to defer tax liability until and unless they decide to sell
their shares. Eicher seeks to use stock as a form of payment because its current stock price is
exceptionally high. Moreover, issuing stock will provide the key to retaining employees at
Force with an incentive to work hard and help facilitate smooth integration of both companies.
The parties should enter into a collar arrangement in order to be ready in the event of any
material adverse changes in either party‘s common stock price prior to public announcement
of this transaction.

The final 25% of this transaction will be financed in debt. Eicher has several options with
respect to debt financing; however, Eicher should obtain a secured loan for this acquisition.
Since Eicher has a good credit rating score, they would be able to get the loan at a very low
interest rate. By leveraging this transaction, Eicher will get a greater return on its investment.
ICRA rating of Eicher motors is as follows:

The outlook on the long-term rating is “Stable”. Hence there are good chances for the Eicher
Motors to finance 25% to 35% of the acquisition through the debt.”
Integration Plan
“Under the terms of the deal, Eicher Motors will acquire all assets, employees, trade names,
technical know-how and intellectual property of the 113-year-old Performance Products.

We are expecting a good demand for tractors because of normal south west monsoon in the
country. Force motors is a reputed brand in rural areas for Tractors. Also mini Vans of Force
motors will add to the bottom line of the company effectively. We are also expecting a better
synergy as both the company are in same industry and produce somewhat similar product. The
technology can also be acquired from Force Motors which will have long term benefits.
According to the British company's website, it designs, develops, manufactures and markets
road and racing automobiles chassis and components that are marketed in Britain and exported
worldwide.

Ford motors working on its new generation of products and platforms; to have the Harris
Performance team dedicatedly working with us will clearly enhance our engineering and
product design capabilities.

Their proven expertise, deep insight and understanding of automobiles will be invaluable for
us in our journey towards achieving leadership in the global mid-sized automobile segment.

All of the current staff at Ford Performance will now become employees of Eicher, taking
responsibility of performance and development engineering for our new range of Automobiles.
They will be part of Eicher’s upcoming Tech Centre.

Recommendation:
Our recommendation is to purchase Ford motors but to maintain limited management
autonomy while also integrating Ford into Eicher distribution network. We would restructure
the subsidiary. Improving the performance of the target company is one of the most common
value-creating acquisition strategies of this acquisition. It radically reduces costs to improve
margins and cash flows. It is a big steps taken to accelerate revenue growth.”

Conclusion

“As we are looking to move our business ahead and forward by adding more customer base,
we can consider it as a strategic acquisition of force motors.
We believe that we can buy the company at a reasonable price. We are sure that with the
strategic acquisition of the force motors, we can build higher synergy which can actually help
us in reducing the total cost of running both the businesses together and we will be able to
create more value for the combined company and increase our shareholder’s wealth.

As far as acquisition strategy is concerned, we believe that by acquiring force motors, we are
creating an opportunity where “whole will exceed the sum of the parts”
Some of the major advantages of implementing the acquisition strategy:

 This will add value to the combined unit by removing the redundant functions and will
help in increasing overall revenue for the company.

 We can take advantage of the additional distribution channel at northern parts of India,
which we will get by acquiring force motors.

 By acquiring force motor, we will be having a hold in low commercial vehicle segment
which will help in reducing the overall seasonal fluctuation we see with heavy
commercial vehicle segment and vice- versa.”

References
DePamphilis, D. (2009). Mergers, acquisitions, and other restructuring activities: An
integrated approach to process, tools, cases, and solutions. Academic Press.

Gaughan, Patrick A. Mergers, acquisitions, and corporate restructurings. John Wiley & Sons,
2010.

Eicher Motors Annual Report 2015-2016, retrieved from Centre for Monitoring Indian
Economy database

Force Motors Annual Report 2015-2016, retrieved from Centre for Monitoring Indian
Economy database

Gaughan, P. A. (2005). Mergers: what can go wrong and how to prevent it(Vol. 4). John Wiley
& Sons.
Turnitin Report