Merger & Acqusitions

8/8/2019 Merger & Acqusitions

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Merger & Acquisition

By

Dr. Gurendra Nath Bhardwaj


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Suggested Readings on Merger &

Acquisition Chapter 15, Investment Banking by Pratap, G,

Subramaniyam

Chapter 28, Financial Management byJonathan Berk, Peter De Marzo, & Ashok

Thampy.


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Concept

Profitable growth constitutes one of the prime

objectives of any business unit.

It can be achieved through internal expansion& diversification.

Otherwise, it can be facilitated through

acquiring any existing business unit.


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Merger is a combination of two or more firms

in which the resulting entity maintains the

identity of one of the firms only.

An amalgamation involves the combination of

two or more firms to form a new firm.


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In case of merger/ absorption, the firm that

has been acquired / absorbed is known as

target firm and the firm that acquires is known

as the acquiring firm.


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Types of Merger

There are following three types of mergers-

Horizontal

Vertical Conglomerate


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Advantages

The major economic advantages of mergers are-

Economies of scale

Synergy Fast growth

Tax benefits

Diversification


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Disadvantages

Merger suffer from certain weaknesses

Managerial disputes

Minority shareholders


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Determination of purchase price

Book Value

Appraisal Value

Market Value

Earnings per Share


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Payment of purchase price

Ordinary share financing

Debt & preference share financing

Convertible securities

Deferred payment plan

Tender offer


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Rationale to the Mergers &

Acquisitions

To create long term holding structure

To grow at a rate faster than an organic growthrate

To enter a new market or grow beyond asaturated market

To capture forward and backward linkage in thevalue chains

To attain control on a larger fund/manufacturingbase

To attain or better utilize tax covers


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To facilitate distribution of assets and familysettlements

Achieve synergies of operations

To exit non-core business

Bail-out merger & acquisitions are common whena company is in trouble and seeks financialstrength

Strategic collaboration

To facilitate the entry or exit of business partners


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StatutoryRecognition of Mergers &

Acquisitions

The Companies Act

The Income Tax Act

The competition Act


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Process of Merger

Formulation of the plan

Valuation and deal structure

Negotiations and Management Approval

Due Diligence

Seeking the court (Tribunal) Approval

Other statutory Approvals Accounting Aspect


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Acquisitions

Historical Prospective

Provisions of takeover code

40 a

40 b

Broad Framework of the takeover code

Important definitions

Main Requirement under the code

Exemption from open offer Requirements


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Deal process of take over

Open market purchase

Negotiated Acquisitions

Preferential Allotment

Strategic Issues in Acquisitions and Take over


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Role of Investment Banker in

Merger & Acquisition

Performs the pivotal role of transaction services,

acting as a catalyst for the entire deal.

Prepares the entire feasibility plan,

deal structure,

necessary deal specific literature,

identifies the buyers or the sellers as the case may be,

conducts valuation and due diligence (as a third party) and

negotiations for arriving at term sheet


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Works closely with other professionals such as-

accountants

and legal advisor

in order to look at the legal, accounting & tax issues involvingsuch merger & acquisitions.


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Merger

Merger is a term associated with the

integration of one company into another.

The merging company would exist thereafterand all its assets & liabilities get legally vested

in the merged company. This is the most

common form of asset based integration

between two companies.


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The consideration for the transfer company is

settled by shareholders of the transferor

company acquiring shares in transferee

company.

If the deals happens on all cash basis, the

shareholders of the transferor company are

paid agreed values of their shares in cash.

Deals may be finalized partly in cash & shares.


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Acquisition

Acquisition means the purchase of or getting

access to significant stake in the company.

Therefore, acquisition need not to be with theintent to seek management control.

So, many a times acquisitions are strategic

initiatives without a motive of controlling the

management affairs.


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Difference between Merger &

Acquisition

Merger is taken place through transfer of

assets whereas the acquisition is throughtransfer of equity.


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Assignment

Takeover code by SEBI

Competition Act


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Questions to be discussed


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Documents

Merger & Acqusitions