Merger & Acquisition

YOGESH J. LALANI 18 MBA-1 S.R.LUTHRA

MERGER & ACQUISITION

[TYPE THE COMPANY NAME] [Pick the date] Authored by: Rohan

Definition of Merger & Acquisition {M&A}:1. Merger: - A merger is the complete absorption of one firm by another and in this scenario we refer to an acquisition that takes place in friendly terms. 2. Acquisitions:-The acquiring firm retains its identity and acquires all the assets and liabilities of the acquired firm that ceases to exist and, thus, such transactions are also called acquisitions. In a consolidation, both firms cease to exist and a new firm is created after the acquisition (e.g. Peco Energy and Unicom merged to form the new utility firm Exelon.

Types of Mergers : 

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Horizontal: a firm acquires another firm in the same industry (Daimler – Chrysler in 1998) Vertical: a firm acquires another firm in a different stage (backward or forward) of the production process (GM Fisher Body) Conglomerate (merger): combination of two firms in unrelated industries (Mobil Oil – Montgomery Ward in 1974) Concentric:-Merger of two firms that are so related that there is a carryover of specific management functions (research, manufacturing, finance, marketing, etc.) Example: Citigroup (principally a bank) buying Salomon Smith Barney (an investment banker/stock brokerage operation)

Reasons for M & A:• •

Economies of scale from horizontal mergers (e.g. BP and Amoco expected to save $2 bn annually from operations) Economies of scope from vertical mergers (integrate suppliers, such as in the case of GM and Delphi, but recent trend is towards outsourcing)

Complementarities: a small firm may have a unique product, but may need the experience in marketing and sales of a mature firm that may also be in need of new products • Unused tax shields: a firm may acquire another (lossmaking) firm to take advantage of tax-loss carry-forwards (IRS will object if this is only reason for merger) • Excess cash/inefficiencies  A firm with excess cash can use it better by acquiring another firm with good projects; a firm with excess cash can also become a target of an acquisition if it is not investing the cash in positive NPV projects  Acquisitions can also eliminate inefficiencies frequently related to bad management •

Profile of Some of the Company Merger and Acquisition by Tata Group M

General Chemical Industrial Products Merge by Tata Chemicals. General Chemical Industrial Products (GCIP) is one of the top five global producers of soda ash. Established in 1884, GCIP was acquired by Tata Chemicals in March 2008, making the Tata company the second largest soda ash producer in the world.GCIP mines the Green River basin in Wyoming, USA, for naturally occurring deposits of trona (an ore containing soda ash). The site is estimated to contain 134 billion tonnes of trona, enough to meet global soda ash demand for hundreds of years at current levels of consumption.

Areas of business GCIP produces natural soda ash, which requires much less energy, capital and raw materials than synthetic soda ash production, thus making it a significantly less costly process. This cost differential gives the company a competitive edge in international markets.

Joint ventures, subsidiaries, associates GCIP has a 75-per cent stake in the General Chemical (Soda Ash) Partners business, the unit that operates the Green River facility, consisting of an underground trona mine and a refining plant on the surface. Tata Chemicals has100% stake of a company.

Location General Chemical has its headquarters in East Hanover, New Jersey, USA

Jaguar & Land Rover Merge by Tata Motors. Jaguar Land Rover is a business built around two great British car brands with exceptional design and engineering capabilities. Jaguar Land Rover’s manufacturing facilities are in the UK.

Areas of business Jaguar Cars, founded in 1922, is one of the world’s premier manufacturers of luxury saloons and sports cars. Land Rover has been manufacturing 4x4s since 1948. Acquired by Tata Motors in June 2008Its products have defined the segments in which they operate.Jaguar Land Rover’s manufacturing facilities are in the UK. The Jaguar Land Rover business employs over 16,000 people, predominantly in the UK, including some 3,500 engineers at two product development centres, in Whitley in Coventry and Gaydon in Warwickshire. The Jaguar XF, XJ and XK models are manufactured at the company's Castle Bromwich plant in Birmingham, UK, while the Jaguar X-TYPE is produced alongside the Land Rover Freelander 2 at the Halewood plant in Liverpool, UK. Land Rover's Defender, Discovery 3, Range Rover Sport and Range Rover models are all built at Solihull, UK. The business is a major wealth generator for the UK, with 78 per cent of Land Rovers exported to 169 countries and 70 per cent of Jaguars exported to 63 countries. Sales to customers are conducted principally through franchised dealers and importers . Aquire. $2.3 billion (approximately)

Location Jaguar Land Rover is based in the UK

Google bought YouTube ($1.65B)     

Google bought a rival. YouTube had four times as many hits as Google Video YouTube streamed nine times as many clips as Google Video. Google’s choice to buy rather than build marked a big strategic change. YouTube = 53% of video users in the world.

Major M&A Deals Undertaken Abroad by India Inc.

Tata steel buys Corus Plc : 12.1$ billion Hindalco acquired novelis: 6$ billion Tata buy jaguar and land rover : 2.3$ billion Essar steel buys Algoma Steel: 1.58$ billion Vodafone buys hutch : 11$ billion POSCO to invest in building steel manufacturing plants and facilities in India by 2016  Goldman Sachs Plans investment in private equity, real estate, and private wealth management      

SOME FAIL CASES IN M&A.  Quaker Oats bought in 1994 Snapple for $ 1,7 bn. $ 500 mil. lost on announcement, $ 100 mil. a year later Snapple was spun off 2 years later at 20% of price  Anheuser-Busch bought in 1982 Campbell-Taggart at $ 560 mil Closed down after 13y of struggling for survival  IBM bought Lotus for $ 3,2 bn. (more than 100% premium) Probably never to be recouped