A Contemporary Report

ON

Merger and Acquisition

By OM PRAKASH PRAJAPATI

MBA: 2nd semester

A report submitted in partial fulfillment of the requirements of PG program (class of 2009-2011)

PACIFIC INSTITUTE OF TECHNOLOGY

Submitted toPROF.ANITA SUKHWALHead of Management StudiesPacific Institute of TechnologyUdaipur (Raj.)-313001

CERTIFICATE

This is to certify that the project report entitled “Merger and Acquisition” submitted for the practical fulfillment of paper on contemporary Issues in Semester II (MBA Program-2009-2011) Pacific Institute of Technology is a record carried out by Om Prakash Prajapati under my supervision and guidance.

This is an original piece of work and all references taken have been mentioned in the report. The literacy presentation of the project is satisfactory.

(Prof.Anita Sukhwal)Head-Management StudiesUdaipur (Raj.)

TABLE OF CONTENTS.

CERTIFICATE ACKNOWLEDGEMENT OBJECTIVES AND PROJECT DESIGN

1.) Chapter 1: Abstract.2.) Chapter 2: Conceptual Framework3.) Chapter 3: Review of Literature: Latest trends in corporate4.) Chapter 4: Conclusions.

BIBLIOGRAPHY

OBJECTIVES & PROJECT DESIGN

This chapter is concerned with the project methodology, which is the foundation stone of a Project, Project Objectives, and Data Collection.

Statement of the Problem:

The present study explores various aspects of, the statement is:-“Merger and Acquisition’’.

Project Objectives:

The main objectives of the research work are:-1.) To study and acquire in depth knowledge in the field2.) To analyze the latest trends and development in the corporate environment in the

field of “Merger and Acquisition’’

DATA COLLECTION:

The design chosen for the study was review of articles in renowned reoffered Journals, Newspares, Magazines, References Books and Websites.

Collection of Secondary data: - To provide a base to the current study variety of secondary data sources has been tapped to develop a conceptual framework.

The sources of secondary data were sort mainly from Pacific Institute of Management Library, Pacific Institute of Technology Library, Pacific Business School Library and Pacific Institute of Management and Technology Library.

Help of various engines on internet, mainly google.com and yahoo.com for reference articles on the subject. Various academicians and practitioners in this field for guidance have also been consulted.

Limitations of the Study:-

1.) The time constraint was a hurdle, as such Primary data Collection could not be done.

2.) The topic was contemporary and had limited data available. But an attempt to present the best has been done.

ACKNOWLEDGEMENT

It is a pleasure for me to express my gratitude towards those who are involved in completion of my report. I whole heartedly thanks to Director Sir of the institution-Prof R.K.Aeron, Supervisor Mam: Prof.Anita Sukhwal, Faculty Guide Mam: Miss Jyoti Jyoshi, Prof.B.P.Sharma Sir, and Prof Harshita Shrimali Mam, for their guidance. Their friendly cooperation and timely guidance made us feel the job of completing our report easy and interesting.

I am also thankful to all the Teaching and Non-Teaching faculty members, and the people who helped us directly or indirectly for the completion of this work with success. This work would not have attained the present form without the sincere and constant help and co-operation provided by all the friends and well-wishers.

Om Prakash Prajapati 2nd SEM, MBA

CHAPTER:1

ABSTRACT

Merger and Acquisition have become a routine feature than an exception in the present day business scenario. In a merger companies join up with each other sharing their resources to reach a common goal. Shareholders of both the entities continue as join owners of the merged entity. In an acquisition , as the denotes, one firm out rightly purchases the assets or shares or both of another company whose shareholders lose their claim on the acquired outfit once the deal is over. As businesses expanding with diversification becoming the order of day, merger and acquisition are being adopted as strategic tools for growth. Restricting to core area makes no business sense any longer, as one can see the way both the houses of reliance are foging ahead with entry into virtually ever field. Tatas are rewriting their corporate history with acquisition galore. No different is the case with the other major industrial houses. All the augurs well for our country which is poised to become an economic force to reckon with, very soon.. Winning the race to future and the rest world requires a strong sense of purpose and speed. Yet, few companies, if any, have what it takes to run the race on their own. The idea of racing as a team is somehow uplifting to the human spirit. The logic of bringing many heads together to achieve what was previously considered difficult or impossible on an individual basis is somehow compelling.

The trends towards globalization of all national and regional economies has increased the intensity of mergers , in a bid to create more focused, competitive, viable, larger players, in each industry. The recent liberalization has made mergers more necessary and acceptable. The globalization may entail redundancies and closures of inefficient units as a consequence of technological upgradation and modernization . As it open the flood gates of competition between unequal partners. The working units below average efficiency are more favourable to mergers and takeover.

CHAPTER: 3

REVIEW OF LITERATURE: LATEST TRENDS IN CORPORATE:

Mergers and Acquisitions Some Paramount Concerns for the

Human Resource Development Practitioner

Mergers and acquisitions are areas that may provide a bevy of opportunities for

the human resource development practitioner. Prior to any discussion regarding these

seemingly elusive constructs, one must examine them from several perspectives. Some

organizational leaders may view a specific endeavor as a merger; others may view the

same endeavor as an acquisition, which is largely dependent upon some specific

particulars associated with the business.

Creating new synergies

M&As are an alluring way for companies to cut costs and achieve synergistiv

financial gains in a growing global market. While profits are the measure of success in

M&As, the driving force behind the success of failure rests on the human resources of the

companies, The recent reports suggest that 50 to 80% of mergers fail because of an

inability to intergrate people into a bohesive new entity. It is well recognized that

merging organizations cultural integration is one of the most crucial ad arduous tasks i a

merger. When the collective identity of the organization is challenged, the post merger

trauma can be significant to employees asn managers. As a result, the organizations

suffers from employees with poor morale, lack from employees with poor morale, lack of

trust, decreased commitiment and attitudinal problems.

This article presents guidelines to assist organizations in managing the crucial

process of merging organizational cultures. In review of successful M&As, a common

characteristic is a proactive approach for crearing a new culture that is salient to the

people from both organizations. This is accomplished byi recognizing toe role of both the

leader and the employees in the meaning at various levels within toe new organization

and using every day events to influence change.

Preparing for the change

Successful mergers require a leader Who unequivocally understands and utilizes

the Cultural differences in every aspect of the merger process Before movthg forward, it

is vital to have employee buyin, This is accomplished in several ways. One way is for

leaders to make an effort to understand the histories and distinctiveness of the groups of

employees involved at both organizations. For example, managers may want to arrange

meetings between employees at each organizations. Before the merger event During these

meetings, it is important to share common ideas, beliefs, values and the mission of the

organizations. Finding common values creates Unity.

Margers and Acquisitions Operationally Defined

M&As have been discussed thus far from an extremel;y pragmatic perspective-

these constructs are essentially elusive but they appear to be easily defined. Same areas of

concern for the leaders of any organization (whether going through a merger or

acquisition or not) are related to the people who comprise the organization. In essence,

when one speaks about mergers and acquisitions one must consider the people who

comprise the organization from the outset. It may appear to be elementary that any

organization is comprised of people but it must be reiterated during a highly volatile

environment such as a merger or acquisition. It is the people who are the citizens of the

organizations who have cognized goals and aspirations that are both personal and

professional—these goals and aspirations must be addressed in a safe and harmonious

environment prior to the merger or acquisition as well as during the process. If one

considers the people of an organization prior to the merger or acquisition; the endeavor

may result in a positive venture for all concerned.

The Success of Mergers and Acquisitions Depends on People

Indian Companies incresingly use M&As to realize their strategic goals. Last

year, they had beer fitivolved in almost 1,400 transactions with a value of $59 bn. Cross-

border deals are very important and make up half of all deals While acquisitions by the

Indian companies abroad make up only 17%, foreign companies are much more

acquisitive in India with 32% of all deals. It is an important fact that Indian companies

increasingly use M&As transactions to grow international or even globally. The most

popular destination for acquisitions abroad byIndian companies in 2007 was the US. In

total, most M&As deals with Indian parties involved were done in the financial sector

followed by high technology and industrial sectors. However, about 75% of 41 mergers

and acquisitions do not meet the expectations. Inmost tãäes so-called “people issues” are

blamed for, failure or results below expectation.

Thorough Human Capital Due Diligence

A thorough human capital due diligence, is an important cornerstone for laying the

foundation of a successful deal. The due diligence, when the target company or merger

partner is analyzed for risks and opportunities, offers a chance to learn in detail about the

other party and to prepare for the integration phase ahead. If this due diligence is done the

right way, it greatly increases the chances of success. The human capital due diligence is

only a part of the overall due diligence which also includes a financial,

commercial/operational and legal due diligence. Components to be analyzed as part of

the human capital due diligence are talent, organizational design, workforce remuneration

and industrial relations.

Mastering the Biggest Challenges During Integration Phase

Arranging and closing an acquisition or a merger causes a lot of work. The

essential and hardest work load, however, comes with the integration phase. During

integration, four of the six biggest challenges are people related. Managers see the

greatest challenge in combining the implementation of integration and change with

continuing daily business operations. In order to master that challenge, additional staff

resources are needed. The next hurdle is that targets in M&As deals are quite ambitious.

Acquisitions and Mergers as A Business Policy : A Study

The Trend towards globalization of all I national and regional economfes has increased

intensity of mergers in in a bid to create more focused competitive, viable and larger

players in each in deustry. Merger and Acquisitions have become increasingly important

channel of cross border industrial restructuring and foreign direct investment all over the

world in the India the policy liberalization in the 1990s has facilitated M&A including

cross-border M&As.

In post-globalization scenario industrial units which want to survive, have to excel and

compete successful both with domestic and multinational Competitors in internal as well

as international market. As a result the business increase competitive, viability an

confident its position.

Merger and Acquisition have emerged as a natural process of business restructuring

throughout the world. The process of M&A spans geographical boundaries, cross-border

M&A, mostly by multinational corpora MNCs. For the Indian industry market driven

M&As are essentially a phenomenon of the late 1990s.

Merger and Acquisition as a Strategic choice :

A merger is popularly understood to be a fusion of two companies. Generally, acquisition

is the purchase by one company of a substantial part of the assets of security of another,

normally for the purpose of the acquired entity. The most poupular types of mergers are

horizontal, vertical, conglomerate and consolidation. They are not the only means of

corporate growth but are an alternative to organic growth. From time to time companies

have preferred external growth through M&A than organic growth due to some stratedic

objectives.

These strategic objectives may be growth and expansion of the firm, reduction of cost

throudgh economies of scale, gaining competitive advantage in existing product markets,

market of product extension, of risk reduction. Futther, like all other strategic decisions,

acquisitions should also satisfy the criterion of value addition.

Mergers and Acquisitons need to be placed in the context of the firm's broader corporate

and business strategy framework. Different types of acquisition are dictated by the firm

strategic imperatives and choices. The choice for opting to M&A strategy may be critical

to the healthy expansion of business firms, as they evolve through successive stages of

growth and development.

Trends and Patterns of Overseas Acquistions by Indian Frims:

The Indian drugs and pharmacetticals industry is one of the largest and most advanced

among the developing countries. The domestic drugs and phamaceuticals market in

anticipated to grow at an annual rate of 15.66 percent and export are excepted to grow at

an average annual rate of 29 percent for formulations and bulk drugs.

Some of the companies in this category have developed in the Indian Market and most to

htem into exports. Companies like Ranbaxy. cipla, Dr. Reedys, Cipla, and Cadila Healthe

Care Have all got US-FDA approvals which are a prerequistie for access to the US

market.

Number of overseas acquisitions by Indian firms was 33 in 2000 which come down to 21

in 2002, but again increased to 38 in 2003 and reached to a high of 177 in 2006 and witin

eight months of 2007, Indian MNCs have made 122 acquisitions worth nearly $ 32.9

billion. For the fist time in 2006 the value of overseas acquistitions done by Indian

Multinational exceeded foreign fim acquisitons made in India. Higher economies growth,

rising foreign exchange reserve, continuing liberralization of OFDI policy, increasing

bilarteral trade are the main reasons as to why tis has taken place.

Overeseas Acquisition by Indian Pharmaceutical Firms : In recent years, Indian

Pharmaceutical Industry has undertaken merger and acquisition in international markets

in order to globalize their operations and improve their intermational competitvenes.

There has been signifcant growti in merger and acquisition activity in Indiaa since 1991.

Year All Sector (number)

Pharmaceutical (number)

All Sector ($ million)

Pharmaceutical ($million)

2000 33 1 896 n.a.

2001 23 1 188 n.a

2002 21 5 2536 25.35

2003 38 4 649 45.65

2004 44 7 2787 9.88

2005 135 27 3564 21.52

2006 177 28 7658 28.78

2007 123 14 32858 2.16

Total 594 87 51136 7.20

Mergers and Acquistions Trends : Mergers and Acquisitions (M&A) interest in India

is currenty very high in the pharmaceutical industl9. Size and end-to-end connectivity are

malor dotnmersts in five global markets. To achieve them, Westem MNC's have to look

to Indian’ companies. India’s changing therapeutic requirements arid patent laws will

provide new opportunities for big pharnta for launching their patented molecules. While,

India is strong manufacturing base will stand global generic companies in good stead as a

tow-coal development and menutacturng destinationnesides consolidation in the domestic

industry and investments by the US and European tirnia, the spate of mergers and

acquisitions by Indian companies has ushered an era of the-Indian Pharrnaceutiod MNO’.

After traversing the teaming curve through partnerships asd alliances with intema’ iional

pha’maceulical firms, Indian pharnnacsul’cal companies have now moved up a step in

the value chain and are looking at inorganic route to growth through acquisitions. Many

top end middle her Indian ccrnpanies have gone on a global shopping spree to build up

critical maca in International markets. In addition, given the easy acoesa to global finance

the Indian companies are finding It baaier to lurid their acquisitions.

Indian pharmaceutical companies reign supreme compared to their multinational

counterparts in India- Profit mergina nI Indian companies are on the rise and the recant

trend of mergers and acquisitions by Indian pharmaceutical are likely to provide an up’

side to the growth numbers.

Given the increasing spate of merger and acquisitions in the global pharmaceutical sector,

the valuations are at an all time peak, there is toe couch money chasing too lee targets-

Going forward in this trend would slow down as valuations are cyclical in nature. The

consolidation trend will continue with Indian pharmaceutical players playing a major

role. With access to capital higher staying power. because of low costs, and management

willing to globalize this trend will continue.

Many of the MNCS patented drugs wilt come of patent by 2012-2014 Ibis again can be

seen as a opportunity to Indian Pharma firms to enter the global market in a significant

say due to their coat efficiency and competitive edge more so in the generic drug sector.

Long- term Post-merger Performance of Firms in India

Mergers are important corporate strategy actions that, among other things. aid the firm

external growth and provide in competitive advantage. This area has spawned a amount

of literature over the past half a restroom especially in the developed economies of the

world. India ton has been seeing a growth in the- number of mergers over the past one-

and-a-half decades since econonric tiberalialion and financial reforms were introduced in

1991. Studies on the post-merger long-terms performance of firms in both the developed

and the developing markets has not able to come to a definite and convincing conclusion

about whether mergers I, helped or hindered firm performance. Our literature review

shows that mergers do not appear to be resulting in favorable financial performance of

firms in the bug-term in the markets where they are a fairly recent phenomena.

Post-merger Long-term Operating Margin Performance :

This section examines the operating margin performance of the combinde firms affer

themerger. The attempt is to determine whether this performance is better as compated to

the premerger performance to these same firms that had not merged.

Two pairs of mergin firms Sun Pharmaceutials and M I Pharmaceuticals, and Usha ispal

and Usha Udyog are dropped from this analysis, since on analysing for ouflier, it was

found that the values pertaining to these pairs lie beyond three standard deviations. Data

of three pairs of merging firms could not be obtaned. The new sample sixe is thus 82

pairs of merging firms.

HCL’s Acquisition of Axon

On December 15,2008 HCL Technology Limited (HCL),a division of the Delhi –

based IT company ,HCL enterprises,its announced acquisition of UK based system

applications and products in data processing (SAP) consultancy firm, AXON group .

AXON,a consultancy firm,dealt in business transformation programs for corporate that

worked on application using a SAP platform.AXON had an important and large client

base with offices in UK,US Malaysia,Singapore,China,India and Australia.

The payment for the deal was made in cash.To fund the deal,HCL had taken

monetary .The acquisition was managed by HCL EAS, the UK based subsidiary of HCL

and new entity was to be called HCL AXON with Cardell,president,Axon,at the time of

acquisition,assuming the position of the new entity

CHAPTER: 4

CONCLUSION

The objective of above report was to test the hypothesis that merger in India have helped firms perform better in the long term .A comprehensive understanding and an analysis of the Indian industrial and economic context ,with studies carried out in the other market ,assisted in my arriving at this hypothesis ,as is evident from the section on the review of extent empirical literature.My hypothesis that merger in India have resulted in improve long term post merger firm operating performance stand validated through this study . we are in a position to conclude that ,on an average ,merging firms in India appear to have performed better financially after the merger, as compared to their performance in the pre-merger period .This improvement in performance can be attributed to the merger .People account for the success in M&As. Especially during the vital integration phase and the resulting and necessary change you need to consistently pay attention to success factor and potential barrier .

The people who comprise any organization may fall prey to rumor and innuendos if the organizational leader do not provide an abundance of valid and reliable information for these people It is paramount for the people of any organization to be include during the entire process of a merger or acquisition .It is also a paramount consideration for an organization to operationally define the merger or acquisition as the endeavor progresses perspective is a paramount consideration.

M&As are constructs that may have unlimited potential for all of the citizens of an a organization if the information is provided in a valid and reliable manner. It is imperative for the member of any organization to trust the organizational leaders during this type of endeavor dialog is a powerful tool in building trust at all level of an organization

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