Merger and its Recent

Trends in India
Underlying Principle for
M&A Transactions
2+2≠4
Additional Value of “Synergy”
Presented by:
Mohit Asayach Pawan Gandhi
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Meghna Gandhi Neha Garg
Merger- Basic concepts

Merger
It is the combination of two corporate
entities where the assets and liabilities
of both are vested in a third entity, with
the effect that both former entities lose
their identities to form a new entity.

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 Competition Act 2002
Section 2(a)

Acquisition
It is the acquiring of shares, voting
rights, assets (directly or indirectly),
or control over management or
assets, of another enterprise.

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Types of Mergers
Horizontal Merger

Conglomerate
Vertical Merger
Merger

Congeneric Merger Dilutive Merger

Accretive Merger Reverse Merger

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 Horizontal Merger

It is the merger between two

companies that are in direct
competition to each other & share the
same products line

Adidas –Reebok Merger

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 Vertical
Vertical merger is between enterprises
that operate at different levels of the
production or distribution cycle.
1. Vertical Forward Integration – Buying a customer /
distributor
 Indian Rayon’s acquisition of Madura
Garments along with brand rights (2000)

2. Vertical Backward Integration – Buying a supplier

 IBM’s acquisition of Daksh (2004)
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 Conglomerate
It is a merger between enterprises
operating in different markets.
• Product extension conglomerate mergers
involve firms that sell non-competing
products use related marketing channels of
production processes.
• Market extension conglomerate mergers
join together firms that sell competing
products in separate geographic markets
• A pure conglomerate merger unites firms
that have no obvious relationship of any kind
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 Motivation for Mergers

• To diversify the areas of activity and

thereby to reduce business risks
• To achieve optimum size so as to reap
the benefits of economy of scale
• To serve the customer better
• To grow without any gestation period
• Add synergy
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 Adverse Effects of
Mergers
• Mergers especially horizontal reduces the competition in
the market
• Mergers amongst rivals is invariably unfriendly to
consumers
• Mergers often results in increased market share and
thereby leads to dominance which makes the resultant
enterprise complacent and thereby brings inefficiency in the
organization
• Mergers between healthy and unhealthy enterprises
reduces the tax liability and thereby makes the State’s
exchequer poor
• Mergers often fail to create harmonization in human relation
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 Regulatory Framework
• SEBI (substantial Acquisition of shares &Takeovers)
Regulations 1997.
• The Securities and Exchange Board of India Act,1992
• SEBI Disclosure and Investor Protection Guidelines
2000.
• Securities and Exchange Board of India (Merchant
Bankers) Rules/Regulation 1992.
• SEBI (Delisting of Securities )Guidelines,2003.
• Foreign Exchange Management Act,1999.
• Companies Act,1956.
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• Income Tax Act, 1961
 India goes Global
Amount
Acquirer Acquired Country Industry
($ million)
Corus Group
Tata Steel UK 12,000 Steel
plc
Hindalco Novelis Canada 5,982 Steel
Daewoo
Videocon Electronics South Korea 729 Electronics
Corp.
Dr. Reddy’s Pharmaceutica
Betapharm Germany 597
Labs l
Suzlon Energy Hansen Group Belgium 565 Energy
Kenya
HPCL Petroleum Kenya 500 Oil and Gas
Refinery Ltd.
Pharmaceutica
Ranbaxy Labs Terapia SA Romania 324
l
Tata Steel Nat steel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics 11

VSNL Teleglobe Canada 239 Telecom
 Legal Procedures as per
Companies Act, 1956 for M & A
in India
• Permission for merger ( MoA )
• Information to the stock exchange
• Approval of board of directors
• Application in the High Court
• Shareholders and creditors meetings
• Sanction by the High Court
• Filing of the Court order (to the registrar of the companies)
• Transfer of assets and liabilities
• Payment by cash or securities 12
 SEBI (Substantial Acquisition of Shares
&Takeover) Regulations 1997
Reg-7: Disclosure to company and to stock exchange by any
person who acquire more than 5%,10% or 14% shares
Reg-10: No acquirer shall acquire 15% or more shares unless
such acquirer makes a public announcement to acquire shares
of such company as per SAST,1997
Reg-11: If (15%-75%) shares acquired as per Law then no
acquirer can acquire additional shares which entitle him to
exercise 5% or more in any financial year, unless public
announcement is made.
Reg-13: Before making public announcement merchant
banker is to be appointed
Reg-14: Timing of Public Announcement Offer not later than 4
working days after agreement for acquisition of shares 13
Reg-15: Public Announcement of offer to be made in
newspaper,
. Hindi, regional and mostly traded area. Public
Announcement shall be submitted to: SEBI through merchant
Banker
Reg-18: Within 14 days from the date of Public Announcement
draft letter of offer to be filed with SEBI through Merchant
Banker.
Reg-19: Public announcement shall specify a date for the
purpose of determining the name of the shareholder to whom
Letter of Offer will be sent shall not be later than 30th day.
Reg-21: Minimum number of shares to be acquired by Public
offer-20%. If the public shareholding goes below 10%, delisting
of securities guidelines will apply.
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 Waves of merger
First Merger Wave
(1897-1907)
•The first merger wave followed the Depression of
1883.
•The first merger wave included many horizontal
mergers, so the affected industries became highly
concentrated
Example, during this period J.P. Morgan merged U.S.
Steel with Carnegie Steel and more than 700 small
steel firms. The resulting mega-steel company
controlled 70~80% of the steel production in the
United States
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Second Merger Wave
(1916-29)
 The second merger wave began during World
War I and continued until the stock market crash
of October 29, 1929
 Because of the heighten government vigilance
that occurred toward the end of the first merger
wave, mergers during the second merger wave
faced increased governmental scrutiny
 Overall, mergers of the second merger wave
were characterized by oligopolies rather than
monopolies. There were more vertical mergers
than horizontal mergers 16
Third Merger Wave
(1965-1969)
 The third merger wave coincided with a
period of economic prosperity in the
United States. The strong economy gave
many firms the resources necessary to
acquire other companies
 The third merger wave was characterized
by mergers among unrelated companies,
also known as conglomerate mergers
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Fourth Merger Wave
(1981-1989)
 The fourth merger wave coincided with the
presidency of Ronald Reagan, and the economic
prosperity of the mid- to late-1980s
 Mergers of the fourth merger wave were larger
than those of earlier periods. Mergers in the
billion-dollar range became common
 Debt was more widely used to finance mergers

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Fifth Merger Wave
(1993 - today)
 The fifth merger wave followed the economic recession
of 1990-91, and coincided with the presidency of Bill
Clinton.
 Large mergers occurred at about the same level as they
had during the fourth merger wave; but hostile takeover
activity diminished.
 Whereas many of the mergers of the fourth wave were
executed for short-term financial gains, mergers of this
period emphasized longer term business strategies.
 Debt-financed mergers were less common than they
were during the fourth wave
 Strategic mergers
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Thanks

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