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FMS WISDOM

SUBMITTED TO: SUBMITTED BY:

Dr.Ranjan Upadhyay Pallavi Gairola(7240)

Senior Faculty Sonam Singh(7316)

FMS WISDOM Suman Kumari(7319)

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INDEX

Definition of Merger Types of Merger Definition of Acquisition Difference between Merger & Acquisition Impact Advantages Disadvantages Merger & Acquisition in Banking Sector Motives Future in Banking Sector Conclusion

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MERGER

Definition: In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place.

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EXAMPLE

GLAXO WELLCOME+SMITH KLINE BEECHAM =GLAXOSMITH KLINE

GLAXO WELLCOME: Originally it was a baby food manufacturer company.

It process local milk into baby food. SMITH KLINE BEECHAM: It is a pharmaceutical

company.

Founded in 2000 due to merger of “GLAXO WELLCOME” & “SMITH KLINE BEECHAM

It is also known as GSK. It is a public limited company.

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TYPES OF MERGERS

From the perspective of business structures:

Horizontal merger - Two companies that are in direct competition and share the same product lines and markets. For example, combining of two book publishers or two luggage manufacturing companies to gain dominant market share

Vertical merger - It is a combination of two or more firms involved in different stages of production or distribution of the same product. For example, joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

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Market-extension merger - Two companies that sell the same products in different markets.

Product-extension merger - Two companies selling different but related products in the same market.

Conglomeration - Two companies that have no common business areas For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.

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FROM THE PERSPECTIVE OF FINANCE:

Purchase Mergers: This kind of merger occurs when one company purchases another.

Consolidation Mergers: With this merger, a brand new company is formed and both companies are bought and combined under the new entity.

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ACQUISITIONS

Definition: When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

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TOP 10 ACQUISITIONS MADE BY INDIAN COMPANIES WORLDWIDE

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DIFFERENCE BETWEEN MERGERS & ACQUISITIONS

In the case of a merger, two firms

together form a new company. After

the merger, the separately owned

companies become jointly owned

and obtain a new single identity. Mergers take place between two

companies of more or less same size.

In these cases, the process is called

Merger of Equals. When two firms merge, stocks of

both are surrendered and new stocks

in the name of new company are

issued.

However, with acquisition, one firm takes over another and establishes its power as the single owner.

The relatively less powerful, smaller firm loses its existence, and the firm taking over, runs the whole business with its own identity.

Unlike the merger, stocks of the acquired firm are not surrendered, but bought by the public prior to the acquisition, and continue to be traded in the stock market.

MERGERS ACQUISITIONS

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IMPACT OF MERGERS & ACQUISITIONS

Impact Of Mergers And Acquisitions on workers or employees

Impact of mergers and acquisitions on top level management

Impact Of Mergers And Acquisitions on shareholders

a) Shareholders of the acquired firm:

b) Shareholders of the acquiring firm:

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ADVANTAGES OF MERGERS AND ACQUISITIONS

Shareholders get better information about the business unit because it issues separate financial statements

Separating a subsidiary from its parent can reduce internal competition for corporate funds.

For employees of the new separate entity, there is a publicly traded stock to motivate and reward them.

Corporate restructuring techniques, which involve the separation of a business unit or subsidiary from the parent, can help a company raise additional equity funds.

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DISADVANTAGES OF MERGERS AND ACQUISITIONS

De-merged firms are likely to be substantially smaller than their parents, possibly making it harder to tap credit markets and costlier finance that may be affordable only for larger companies.

There are the extra costs that the parts of the business face if separated. When a firm divides itself into smaller units, it may be losing the synergy that it had as a larger entity.

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ACQUISITIONS AND MERGERS IN BANKING SECTOR

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Mergers and acquisitions in banking sector have become familiar in the majority of all the countries in the world.

A large number of international and domestic banks all over the world are engaged in merger and acquisition activities.

The principal objectives behind the mergers and acquisitions in the banking sector is to reap the benefits of economies of scale.

Mergers and acquisitions in banking sector are forms of horizontal merger.

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With the help of mergers and acquisitions, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent.

Important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry.

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EXAMPLES OF ACQUISITIONS IN BANKING SECTOR

Standard Chartered Acquires ANZ Grindlays Bank (November '00)

HDFC Bank Acquires Centurion Bank of Punjab (May '08)

Bank of Baroda Acquires South Gujarat Local Area Bank Ltd (June '04)

ICICI Bank Ltd. Acquires Bank of Madura (March '01) Oriental Bank of Commerce Acquires Global Trust Bank

Ltd (August '04)

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MOTIVES BEHIND MERGERS & ACQUISITIONS

Growth Synergy Managerial efficiency Tax shields and financial safeguards Regulatory intervention

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FUTURE OF M&A IN INDIAN BANKING

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CONCLUSION

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☻THANK YOU