MERGER & ACQUISITIONS

PRESENTED BY

JAWED AKHTAR

DEEKSHYA AJEY

LOVEJOY

NITIKA BHANDARI

MANAN ARORA

YASH AGRAWAL

Contents

Introduction

Definition

Reasons

Advantage

Disadvantages

Types

Cases

Introduction

Mergers and acquisitions (M&A are both aspects of strategic management, corporate finance and management .

It is a type of restructuring in that they result in some entity reorganization with the aim to provide growth or positive value. 

Definition

MERGER

It is a legal consolidation of two companies into one entity

Combining of two business entities under common ownership

Or

Two firms coalesce and share resources in order to realise a common goal

ACQUISITION

It occurs when one company takes over another and completely establishes itself as the new owner.

It is the purchase of one business or company by another company or other business entity.

"Acquisition" usually refers to a purchase of a smaller firm by a larger one.

REASONS

Increase the value of company stock Increase growth rate & make good

investment Improve stability of earning and sell To acquire reasons to stabilize

operations To balance, complete or diversify the

product line

ADVANTAGES

DISADVANTAGES

Diseconomies of scale if business become too large, which leads to higher unit costs.

Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration.

May need to make some workers redundant, especially at management levels - this may have an effect on motivation.

May be a conflict of objectives between different businesses, meaning decisions are more difficult to make and causing disruption in the running of the business.

Types of merger

Horizontal Vertical Co- generic Market extension Product extension

Contd…

HORIZONTALexists between two companies who compete in

same industry segment

companies continue their operations and gains strength in terms of improve performance, increase capital & enhance profits

FOR EG: A merger between Coca-Cola and the Pepsi beverage division, for example, would be horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with more market share. Because the merging companies' business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing, and reduce costs.

CONTD…

VERTICAL

two or more companies merge who are in same industries but in different fields

decides to combine all their operations and production under one shelter

FOR EG :  An automobile company joining with a parts supplier would be an example of a vertical merger.

Reliance and FLAG telecom group in 2003

Contd…

CO-GENERIC

companies in association are some way or the other are related to the production process, business market or basic required technology

Includes extension of product line or acquiring components that are required in the daily operations

FOR EG: CITI group acquisition of travelers insurance while both were in the financial service industry but have different product line

CONTD…

MARKET EXTENSION

A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.

FOR EG:  Eagle Bancshares Inc by the RBC Centura. Eagle Bancshares is headquartered at Atlanta, Georgia and has 283 workers. It has almost 90,000 accounts and looks after assets worth US $1.1 billion.

CONTD…

PRODUCT EXTENSION

A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.

FOR EG: The acquisition of Mobilink Telecom Inc. by Broadcom

Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN.

Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology.

It is also in the process of being certified to produce wireless networking chips that have high speed and General Packet Radio Service technology. It is expected that the products of Mobilink Telecom Inc. would be complementing the wireless products of Broadcom.

POSITIVE ASPECTS OF MERGER

MERGER OF BANK OF RAJASTHAN WITH ICICI BANK

MERGER OF CENTURION BANK OF PUNJAB AND HDFC BANK

MERGER OF BANK OF RAJASTHAN WITH ICICI BANK

The Reserve Bank of India approved the merger of Bank of Rajasthan with ICICI Bank Ltd, India's largest private sector Bank.

ICICI paid Rs.3000 Cores for it.

All branches of Bank of Rajasthan Ltd. will function as branches of ICICI Bank Ltd. with effect from August 13, 2010

The boards of both the banks on May 23, 2010 approved the merger.

RBI was critical of BOR's promoters not reducing their holdings in the company.

Contd…

Each 118 shares of BOR will be converted into 25 shares of ICICI Bank

All customers will be extended seamless services as per existing Bank of Rajasthan procedures.

All existing BoR products will continue with current features and charges. Customers can continue to transact using their current BoR cheque books, ATM cards, lockers etc.

The minimum balance requirements and service charges on all type of accounts will remain unchanged.

Post the system integration customers can benefit from ICICI Bank's enhanced branch network of over 2500 branches and over 5600 ATMs spread across 1400 locations in the country.

REASONS FOR MERGER

The Bank of Rajasthan with the asset base of Rs incurred the net loss after provisions and taxes remained at Rs. 102.13 crores for the year ended 31st Mar 2010. . 17,300.06 crores

ICICI Bank is learnt to have indicated that it’s willing to pay more than BoR’s present market valuation.

According to banking circles, the Tayals, who acquired BoR a decade ago, have been under pressure to sell the old private bank which is grappling with directives from Sebi and RBI.

In March, Sebi banned 100 entities allegedly holding BoR shares on behalf of the promoters from all stock market activities.

RBI had slapped a penalty of Rs 25 lakh on the bank for a string of violations like deletion of records in the bank’s IT system, irregular property deals and lapses in the accounts of a corporate group

Contd…

Post merger results are satisfactory.

The liquidity position i.e the quick ratio has increased after merger.

Debt equity ratio is also improving,

Net Profit margin is increasing year by year.

Return on net worth has been increased after merger and the EPS has taken a good move after merger.

Hence, the merger is good for both the banks.

MERGER OF CENTURION BANK OF PUNJAB AND HDFC BANK The deal took place in February 2008

It was the largest merger in the private sector banking space in India.

CBOP was valued at $2.63 billion (Rs 9510 crores)

In 2008 RBI sanctioned merger of CBoP with HDFC Bank.

The operations of both banks were merged with effect from May 23, 2008.

WHY HDFC CHOOSED CBOP Cultural fit between the organizations

The bank had a large nationwide network

Strong leadership positions in retail segment

Strong asset quality

High earning growth

Both the banks had a strong position in vehicle financing

Attractive route to supplement HDFC Bank’s organic growth

7,500 talented employees

OBJECTIVE OF MERGER

Horizontal merger (Both the companies were from same industry)

Core objectives: • Achieve economies of scale

• Widening the line of products

• To get more dominance on the market

• To face the competition posed by foreign banks and domestic banks (ICICI)

IMPACTS

Positive impact:• Increased geographical presence

• Recorded growth figures as follows: [by march-2013]

– Net profit by 44.6% to Rs. 4.6 billion

– Net Interest Income by 74.9% to Rs.17.2 billion

– Advances grew by 79.8% & deposits by 60.4%

Negative impact:• High level of write-offs due to bad asset quality of CBoP in

personal loan and 2 wheeler loans

NEGATIVE ASPECTS

MERGER BETWEEN AIR INDIA AND INDIAN AIRLINES

MERGER BETWEEN AIR INDIA AND INDIAN AIRLINES

The government of India on 1 march 2007 approved the merger of Air India and Indian airlines.

Consequent to the above a new company called National Aviation Company of India limited was incorporated under the companies act 1956 on 30 march 2007 with its registered office at New Delhi

Reasons for Failure

The merger coincided with a flurry of increased domestic and international competition.

Weak management and organization structure.

More attention to non-core issues such as long term fleet acquisitions and establishing subsidiaries for ground handling and maintenance, than to addressing the state of the flying business.

Bloated workforce

Unproductive work practices

Political impediments to shedding staff