Under the guidance of our respected

Professor-
Prof C.CHATTERJEE
KAVISH JALAN
 Introduction
 M & A Process
 Reasons and Issues
 Strategic Approach to M&A
 Takeover Strategies and Defenses
 Issues and Defects
 Attributes to effective acquisition
 Legal Procedure
 Caselets:
 P&G and Gillette
 Tata-JLR
 Tata-Corus
 Adidas-Reebok
 Case Study
Corporate restructuring is the reorganization of corporate entities. The
reorganizing can be within the company itself or with the involvement of other
corporate entities.
 A strategy to change business or financial structure.
 Radical changes in composition
 Process of redesigning.
 Example ‟ GE witnessed tremendous growth during tenure of Jack Welch
 Necessity when the company has grown to the point.
 Crucial whenever there is a major shift.
 Continuous process.
 Result - leaner, more efficient, better organized, and better focused .
 Financial Restructuring ‟ Includes raising the
finance, decisions regarding mergers, joint
ventures and alliances
 Operational Restructuring ‟ Reformulate the
company on basis of change in technology and
environment requirements
 Organizational Restructuring ‟ In order to
increase efficiency redefining the organizational
structure or the processes or the systems.
 Market Restructuring ‟ Is the addition of a newer
product or shifting one product or segment to
another or enlarge the market for the exiting
products.
 Culture.
 Inadequate focus and commitment of top
management towards change program
  "What is in it for me" attitude
  Mind set/resistance to change
  Lack of involvement of employees
  Poor planning
  Resource Availability
  Cost and time
  Poor communication
 Expansion
 Sell offs
 Corporate control
 Changes in ownership structure..
 A MERGER happens when two firms, often about same size,
agree to go forward as a new single company rather than remain
separately owned & operated by pooling all their resources
together, to create a sustainable competitive advantage. For
example,both Daimler-Benz & Chrysler ceased to exist when two
firms merged, and a new company ’Daimler-Chrysler’ was
created.
 When a Company takes over another one & clearly becomes the
new owner ,the purchase is called ‘ACQUISITION’. Unlike
mergers, acquisitions can sometimes be unfriendly. i.e., when a
firm tries to takeover another by adopting hostile measures.
 Mergers and Acquisitions M&A ,have become very popular
strategy all over the world in last 3 decades.
 The value M &A WORLDWIDE increased from $464 Billion
in 1990 to $3.4 trillion in 1999-2000, followed by sharp
decline during 2001 & 2002.It has again shown improvement
from 2003 onwards.
 India born Laxmi Nivas Mittal has taken over Arcelor in
Europe , to form a largest Steel making Company in
Europe-”Arcelor-Mittal.”(117 Mtons/Year-Global) .
 Tata Steel-Corus(UK) Acquisition by Tata Steel for $12
Billion is very significant and a landmark for the Indian
Corporate World. (28 Mtons/Annum-2006)
 M&A means and includes

ACQUISITIONS ORG.RESTRUCT.
OWN,RESTRUCT.
MERGERS DIVESTITURES REDESIGN
GOING PRIVATE
PURCHASE OF UNIT SELL OFFS PERFORMANCE
LEVERAGED
TAKE OVERS DEMERGERS ENHANCEMENT
Buy OUTS
ALLIANCES PROGRAMMES
 Managerial Synergy Financial Synergy
Improve management or Redeploy capital
replace inefficient one
Increase ROI

Operating Synergy
Company-specific Risk Scale Economies
Cost-of-capital reduction Improve margins

Market Valuation
Release “value”
 A = Amalgamating Company: Ceases to Exist
 B = Amalgamated Company
 B receives all of A’s assets and liabilities
 Shareholders of A receive shares in B and maybe other
benefits like debentures, cash

A Transfer assets and liabilities B

 A, B and C = Amalgamating Companies: Cease to exist
 D = Amalgamated Company: may or may not have
existed before Merger
 All assets and liabilities of A, B and C transferred to D
 Shareholders in A,B and C get shares in D.

B D

C
 Demergers are one type of spin-offs: under s. 391
 A = Demerging Company
 B = Resulting Company: may or may not have existed
earlier
 A transfers undertaking to B
 B issues shares to shareholders of A

Transfers undertaking Y
X Y Y

Company A Company B
Shareholders
of Issues shares
A
1. Develop a strategic plan for the business.(Business
Plan)
2. Develop an acquisition plan related to the strategic
plan.( Acquisition Plan)
3. Search companies for acquisitions.(Search)
4. Screen and prioritize potential companies.(Screen)
5. Initiate contact with target.
6. Refine valuation, structure the deal and develop
financial plan.( Negotiation)
7. Develop plan for integrating the acquired business.
(Integration Plan)
8. Obtain all necessary approvals and implement
closing.
9. Implement post closing integration.
10. Conduct a post closing evaluation.
 According to Drucker, financial factors provide stimulus for
merger activity. He says that mergers should follow five
rules, in order to be economically viable.
 The acquirer must contribute something to the acquired
company.
 A common core of unity is required.
 The acquirer must respect the business of the acquired
company.
 Within a year or so, the acquiring company must be able to
provide top management to the acquired company.
 Within the first year of the merger, managements in both
companies should receive promotions across the entities
 Horizontal mergers:
 A horizontal merger involves two firms operating and competing in the same
kind of business activity.
 Textiles firm merges raw materials firm.

- Example: Exxon - Mobil

 Vertical mergers:
 Vertical mergers occur between firms in different stages of production
operation.
- Example: Helene Curtis and Unilever
 Conglomerate Mergers:
- Conglomerate mergers involve firms engaged in unrelated types of
business activity
- Example: General Electric buying NBC television
 Concentric Mergers
- Based on specific management functions where as the conglomerate
mergers are based on general management functions
- Example: Citigroup (principally a bank) buying Salomon Smith
Barney (an investment banker/stock brokerage operation
 Reasons for Problems in
M&A Achieving Success
Increased Integration
market power difficulties

Overcome Inadequate
entry barriers evaluation of target

Cost of new Large or

product development extraordinary debt

Increased speed Inability to

to market M&A achieve synergy

Lower risk Too much

compared to developing diversification
new products

Increased Managers overly

diversification focused on acquisitions

Avoid excessive
competition Too large
 Reasons for M & A
Increased Market Power
Acquisition intended to reduce the competitive balance of the
industry

Example: British Petroleum’s acquisition of U.S. Amoco

Overcome Barriers to Entry

Acquisitions overcome costly barriers to entry which may make
“start-ups” economically unattractive

Example: Belgian-Dutch Fortis’ acquisition of American Banker’s

Insurance Group

Lower Cost and Risk of New Product Development

Buying established businesses reduces risk of start-up ventures
Example: Watson Pharmaceuticals’ acquisition of TheraTech
 Reasons for M & A
Increased Speed to Market
Closely related to Barriers to Entry, allows market entry in a more
timely fashion

Example: Kraft Food’s acquisition of Boca Burger

Diversification
Quick way to move into businesses when firm currently lacks
experience and depth in industry

Example: CNET’s acquisition of mySimon

Reshaping Competitive Scope

Firms may use acquisitions to restrict its dependence on a single or
a few products or markets

Example: General Electric’s acquisition of NBC

 Problems with M & A
Integration Difficulties
Differing financial and control systems can make integration of firms
difficult
Example: Intel’s acquisition of DEC’s semiconductor division

Inadequate Evaluation of Target

“Winners Curse” bid causes acquirer to overpay for firm
Example: Marks and Spencer’s acquisition of Brooks Brothers

Large or Extraordinary Debt

Costly debt can create onerous burden on cash outflows
Example: AgriBioTech’s acquisition of dozens of small seed firms
 Problems with M & A
Inability to Achieve Synergy
Justifying acquisitions can increase estimate of expected
benefits
Example: Quaker Oats and Snapple
Overly Diversified
Acquirer doesn’t have expertise required to manage
unrelated businesses

Example: GE--prior to selling businesses and refocusing

Managers Overly Focused on Acquisitions

Managers may fail to objectively assess the value of outcomes
achieved through the firm’s acquisition strategy
Example: Ford and Jaguar
 Present Situation Strategy

Growing steadily but in a mature market Acquire a company in a younger

with limited growth market with higher growth rate

Operating at maximum productive Acquire a company making

capacity similar products operating
substantially below capacity

Under-utilizing management resources Acquire a company into which

the talents can be extended

Marketing an incomplete product range , Acquire a company with

or having the potential to sell other product range which is
products or services to your existing complementary
customers
Lacking key clients in a targeted sector Acquire a company with right
customer profile

Need to increase market share Acquire an important

competitor

Need to widen capability Acquire a company with key

talents and/or technology

Need more control of suppliers or Acquire a company which is, or

customers which gives access to a
significant customer or supplier

Preparing for floatation but need to Acquire a company with the

improve balance sheet right customer profile
Kinds of takeovers:
 Negotiated or Friendly Takeover

The existing management of a company decides to give

away the control of the company to another group on terms
and conditions mutually agreed upon by both the parties.
 Open market or Hostile Takeover
A group acquires shares of a company from the open market
in order to take control of the company
Eg:Autoriders’ Hostile Takeover Bid for Saurashtra Cement
 Bail-out Takeover
When a financially sick company is taken over by a profit
earning company in order to bail out the former ,it is called a
bail-out takeover.
 Tender Offer
General offer made publicly and directly to a firm’s shareholders to
buy their stock at a price well above the current market price.
 Street Sweep
The acquirer accumulates large amounts of the stocks in the target
company before making the open offer
 Bear Hug
The acquirer tries to put pressure on the management of the target
firm by threatening to make an open offer
 Strategic Alliance
An acquirer offers a partnership rather than a buyout of the target
firm.
 Brand Power
The acquiring firm enters into an alliance with other powerful
brands to displace the competitor’s brand.
 Economic Issues
 Legal Issues
 Public Policy Issues
 Powers of financial institutions
 Proxy wars
 Effects on the Acquirer Company
 Effects on the Target company
 Effects on the Shareholders of the Target
Company
 Effects on the Shareholders of Acquiring
Company
 Golden Parachutes
 Poison Put
 Anti-takeover Amendments
o
Super majority amendments
o
Fair price amendments
o
Classified boards
o
Authorization of preferred stock
 Poison Pill Defense
 Targeted Share Repurchase and Standstill
Agreements
 Other Takeover Defences
 A fundamental characteristic of merger is
that the acquiring company takes over the
ownership of other companies and combines
their operations with its own operations.
 An acquisition may be defined as an act of
acquiring effective control by one company
over the assets or management of another
company without any combination of
companies.
Attributes of Effective Acquisitions
+ Complementary Assets or Resources
Buying firms with assets that meet current
needs to build competitiveness

+ Friendly Acquisitions
Friendly deals make integration go more smoothly

+ Careful Selection Process

Deliberate evaluation and negotiations is more likely
to lead to easy integration and building synergies
+ Maintain Financial Slack
Provide enough additional financial resources so
that profitable projects would not be foregone
 Attributes of Effective Acquisitions

+ Low-to-Moderate Debt
Merged firm maintains financial flexibility

+ Flexibility
Has experience at managing change and is
flexible and adaptable

+ Emphasize Innovation
Continue to invest in R&D as part of the
firm’s overall strategy
TRANSACTION STRUCTURE
•Companies Act
•Income Tax Act
•Stamp Acts
•Competition Act

LISTED COMPANIES
•SEBI Regulations
•Stock Exchange – Listing Agreement

TRANS-BORDER TRANSACTIONS
•Foreign Exchange Management Act
 Sec 391 – 394 of Indian companies act
covers M & A.
 Examination of object clause
 Approval from the board
 Intimation to share holders and
creditors.
 Approval from share holders and
creditors.- 75% of SH and creditors to
approve.
 Application to National Company Law
Tribunal (NCLJ)
 Intimation to SEs
 Pettion to NCLT for approval
 Filing order with ROC
 Transfer of assets and Liabilities
 Issuance of shares/cash
THE DEAL
 Sep 20, 06 : CORUS uses the strategy to work with low cost producer.
 Oct 06, 06 : Initial offer by TATA is considered to be too low.
 Oct 17, 06: TATA kept its offer to 455 pence per share.
 Oct 20, 06 : CORUS accepts the offer of £4.3 billion.
 Oct 23, 06 : Brazilian Steel Group CSN counter-offer to TATA’s offer.
 Oct 27, 06 : CORUS criticized by JCB for acceptance of TATA’s offer.
 Nov 18, 06 : The CSN approaches Corus With an offer of 475 pence per share
 Nov 27, 06 : Board of Corus decides to give more time for shareholders to
decide whether it issue forward a formal offer.
 Dec h18,06 : Tata increases its original bid for Corus 500 pence per share, then
CSN made its counter bid at 515 pence per share in cash
 Jan 31, 07 : Tata ad agreed to offer Corus investors 608 pence per share in cash
 Apr 02, 07 : Tata steel manages to win acquisition to CSN and has the full
voting support from Corus shareholders
 TATA Acquired CORUS on 2nd April 2007 which is 4 times larger than its size.
 The deal price was $ 12 Billion.
 TATA Steel,the winner of the auction for CORUS declares a bid of 608 Pence per share.
 In 2005 when the deal was started the price per share was 455 pence.
 TATA Surpassed the final bid from Brazilian steel maker ‘COMPANHIA SIDERURGICA
NACIONAL’ (CSN) of 603 pence per share.
 The combined entity has become the world’s fifth largest steelmaker after the deal.
 For this deal TATA has finance only 4 Billion $ from internal company resources.
 TATA Have secured funding commitments from its advisors.
 These advisors were Deutshe bank, ABN Amro and Standard Chartered.
 FOR TATA

 The initial motive behind the deal was not CORUS

revenue size but rather its market value.
 To compete on global scale because then TATA was
just at 56th rank in steel production.
 CORUS holds a number of Patents and R & D
facility.
 Acquiring Corus will give Tata access to European
customers of steel.
 Acquisition cost will be lower then setting up new
green field plants and marketing channel.
 FOR CORUS

 To extend its Global reach through TATA.

 To get access to Indian Ore reserves, as well as
virgin market for steel.
 To get access to low cost materials.
 Total Debt of Corus was GBP 1.6bn
 Saturated market of Europe.
 Better facilities and lower cost of production
 Employee cost was 15 % (TATA- 9%)
 Profit margin was 3.4% (TATA- 17%)
 Major Acquisitions

Target Buyer Value ($ bn) Year

Arcelor Mittal Steel 31 2006

NKK Corp Kawasaki Steel 14.1 2001

LMM Holdings Ispat Intl 13.3 2004

Corus TATA 12.0 2006

Krupp AG Thyssen 8.0 1997

Dofasco Arcelor 5.2 2005

Intl Steel Mittal Steel 4.8 2005

 COMPANY CAPACITY in
(million tones)
1.Arcelor-Mittal 110.0
2.Nippon steel 32.0
3.Posco 30.5
4.JEF steel 30.0
5.Tata steel- Corus 27.7
 Ford, a leading automaker and one of the largest MNC in the global automobile
industry.
 Ford acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5 billion
 Ford bought Land Rover in 2000 for US$ 2.7 billion from BMW
 Over the years, the operations of both Jaguar and Land Rover were fully
integrated
 Ford reported losses of US$ 12.7 billion in the year 2006
 Ford conducted strategic reviews on the two brands and in June 2007
announced that it was considering selling JLR
 Ford was concerned more about the interest of the workers employed with JLR
than the price
 JLR’s labour union were against selling to private equity firms to be assure of
job security
 On January 03,2008,Ford announced that it had chosen Tata Motors for the
JLR deal and had entered into focused negotiations with the company.
 On March 26,2008, Tata Motors agreed to pay US$ 2.3 billion in cash for a
100% acquisition of the businesses of JLR.
 Tata Motors raised a bridge loan of US S$
3 billion through a syndicate of banks
 The loan was raised through Tata Motors UK,
a special purpose vehicle and a 100%
subsidiary of Tata Motors
 The interest on the bridge loan was linked
to LIBOR(London Inter Bank Offer Rate)
 Tata also proposed to raise around US 500 to
600 million through an international issue
 Sales of JLR declined by 11.4% during the 2nd quarter ending Sep.2008
 Tata motors had to pump in funds to keep JLR on the move
 By the end of Nov.2008,198 employees opted for voluntary retirement
and 400 more decide to leave by Jan 2009
 With not much of cash generation internally, additional investments of
funds would only add to the debt and interest burden of the company
 In early Jan 2009,JLR announced 450 jobs cut
 Announced that managers would not receive any bonuses in 2009 while
salary raises would be deferred till Oct 2009
 For the quarter ending Dec2008,the sales volumes of JLR decreased by
35.2% to 49,186
 Total car sales in the UK in the year 2009 would be at 1.78 million as
against 2.4 million in 2008
 By the end of 2008,retail vehicle sales were reported at 10.8 million-
around 2 million lower than the sales reported in 2007
 Consumers were delaying the purchase of new vehicles due to lack of
consumer loans
 Biggest merger in the history of Consumer
goods
 P&G acquired Gillette for $57b to become
the world’s largest consumer goods company
 Annual Sales of the combined entity:$60.7b
 After purchase of Gillette P&G will have
$21b brands with market cap of $200b
 P&G paid .975$/share(20% premium),later
buyback of shares worth $18-22b over 12-18
months
 Merging companies: similarity in Corporate
history
 Merger based on a different model where
innovation was the focus rather than the
scale
 Regulatory concerns: Product overlaps
 Consumer goods after 1980s
 P&G strength: Women’s personal care products
 Gillette strength: Men’s grooming category
 Complementary in strength cultures and vision to
create potential for superior sustainable growth
 Gillette stock climbed 50% since 2003,profits
jumped on premium products
 Acquisition added about 20% to P&G sales, long
term sales growth estimate to 5-7% a year
 Operating margin expected to grow by 25 % by
2015 from 19% in 2003
 The companies expected cost savings of $14-16
bn from combining back-room operations and
new growth opportunities.
 more resources to enable intensive collaborative
supply chain initiatives in a more cost-effective
way.
 merger would also bring down the advertising
and media costs owing to greater bargaining
power
 Opportunities in developing markets: Gillette
would give exposure to P&G in emerging
economies like India and Brazil, while P&G would
distribute Gillette products in China
 It will give P&G the much needed boost to
further strengthen its product categories where
at present it has negligible presence
 The deal will help Gillette in improving its
inventory days.
 The merger would result in around 6,000 job cuts,
equivalent to 4% of the two companies' combined
workforce of 140,000. Most of the downsizing will take
place to eliminate management overlaps and
consolidation of business support functions. 
 Cultural problems absence because of geographical
proximity
 P&G is considered a promote-from-within company, and
already had a lot of executive talent at the top.
Therefore, absorbing Gillette's management to their
satisfaction could be difficult
 P&G's ability to handle this massive cultural assimilation
would decide the success or failure of this acquisition.
 Overlaps of some brands
 Pressure for competitors in the industry
 competitors could launch new products or
strengthen their supply chain relationships
during this time to gain an edge
 P&G-Gillette combination could be a
transformative deal for the industry because
of Gillette's growth potential. Analyst
forecasted that this deal could lead to
further consolidation in the industry