Mergers & Acquisition

MERGERS AND ACQUISITIONS

TITLE OF THE PAPER: MERGERS AND ACQUISITIONS AREA OF PRESENTATION:

FINANCIAL MANAGEMENT NAME OF THE INSTITUTE: A.J.INSTITUTE OF MANAGEMENT (AJIM) {TRASFORMATIONAL INSTITUTE FOR MANAGERIAL EXCELLENCE (TIME)} KOTTARA-CHOWKI BYPASS ROAD, ASKOKNAGAR POST MANGALORE-575006

EMAIL ID: [email protected] AUTHORS NAME: BHARATH.P PHONE NUMBER: +919739459820

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ABSTRACT Corporate mergers and acquisitions (M&As) have become popular across the globe during the last two decades thanks to globalization, liberalization, technological developments and intensely competitive business environment. The synergistic gains from M&As may result from more efficient management, economies of scale, more profitable use of assets, exploitation of market power, and the use of complementary resources. Interestingly, the results of many empirical studies show that M&As fail to create value for the shareholders of acquirers. In this backdrop, the paper discusses the causes for the failure of M&As by drawing the results of the following areas. This paper is an attempt to evaluate the impact of Mergers on the performance of the companies. Theoretically it is assumed that Mergers improves the performance of the company due to increased market power, Synergy impact and various other qualitative and quantitative factors. Although the various studies done in the past showed totally opposite results. Four parameters; Total performance improvement, Economies of scale, Operating Synergy and Financial Synergy. My paper shows that Indian companies are no different than the companies in other part of the world and mergers were failed to contribute positively in the performance improvement

Keywords: Mergers, Acquisitions

TABLE OF CONTENTS A.J.INSTITUTE OF MANAGEMENT

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CHAPTER I: INTRODUCTION…………………………………………………………………………..4-5 1.1 WHAT IS MERGER?.....................................................................................5 1.2 WHAT IS ACQUISITION?............................................................................6 1.3 WHAT IS TAKEOVER…………………......................................................7

CHAPTER II: REVIEW OF LITERATURE………………………………………………….8 CHAPTER III: REASONS OF MERGERS TO THE COMPANY……………………………………...10-11 CHAPTER IV: M&A ACTIVITIES IN INDIA………………………………………….12-13 CHAPTER V: CASE STUDY……………………………………………………………14-18 CHAPTER VI: CAUSES FOR FAILURE OF M&A……………………………………20-23 CHAPTER VII: CONCLUSION……………………………………………………………24

BIBLIOGRAPHY……………………………………………………………………………25

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CHAPTER I: INTRODUCTION M&A are very important tools of corporate growth. A firm can achieve growth in several ways. It can grow internally or externally Internal Growth can be achieved if a firm expands its existing activities by up scaling capacities or establishing new firm with fresh investments in existing product markets. It can grow internally by setting its own units in to new market or new product. But if a firm wants to grow internally it can face certain problems like the size of the existing market may be limited or the existing product may not have growth potential in future or there may be government restriction on capacity enhancement. Also firm may not have specialized knowledge to enter in to new product/ market and above all it takes a longer period to establish own units and yield positive return. One alternative way to achieve growth is resort to external arrangements like Mergers and Acquisitions, Takeover or Joint Ventures. External alternatives of corporate growth have certain advantages. In case of diversified mergers firm can use resources and infrastructure that are already there in place. While in case of congeneric mergers it can avoid duplication of various activities and thus can achieve operating and financial efficiency M&A has become a daily transaction now-a-days. Mergers and acquisitions are an important area of capital market activity in restructuring a corporation and had lately become one of the favored routes for growth and consolidation. The reasons to merge, amalgamate and acquire are varied, ranging from acquiring market share to restructuring the corporation to meet global competition. One of the largest and most difficult parts of a business merger is the successful integration of the enterprise networks of the merger partners. The main objective of each firm is to gain profits. M&A has a great scope in sectors like steel, aluminum, cement, auto, banking & finance, computer software, pharmaceuticals, consumer durable food products, textiles etc.

It is an indispensable strategic tool for expanding product

portfolio’s, entering into new market, acquiring new technologies and building new generation organization with power & resources to compete on global basis. With the increasing number of Indian companies opting for mergers and acquisitions, India is now one of the leading nations in the world in terms of mergers and acquisitions. Till few years ago, A.J.INSTITUTE OF MANAGEMENT

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rarely did Indian companies bid for American-European entities. Today, because of the buoyant Indian economy, supportive government policies and dynamic leadership of Indian organizations, the world has witnessed a new trend in acquisitions. Indian companies are now aggressively looking at North American and European markets to spread their wings and become global players. Almost 85 per cent of Indian firms are using Mergers and Acquisitions as a core growth strategy.

Merger:

Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller.

Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:

•

Equity shares in the transferee company,

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Debentures in the transferee company,

•

Cash, or

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A mix of the above modes.

Classifications Mergers and Acquisitions A.J.INSTITUTE OF MANAGEMENT

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•

Horizontal o A merger in which two firms in the same industry combine. o Often in an attempt to achieve economies of scale and/or scope.

•

Vertical o A merger in which one firm acquires a supplier or another firm that is closer to its existing customers. o Often in an attempt to control supply or distribution channels.

•

Conglomerate o A merger in which two firms in unrelated businesses combine. o Purpose is often to ‘diversify’ the company by combining uncorrelated assets and income streams

•

Cross-border (International) M&As o

A merger or acquisition involving a Canadian and a foreign firm an either the acquiring or target company.

Acquisition:

Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company.

Methods of Acquisition: A.J.INSTITUTE OF MANAGEMENT

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An acquisition may be affected by

(a) agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power; (b) purchase of shares in open market; (c) to make takeover offer to the general body of shareholders; (d) purchase of new shares by private treaty; (e) Acquisition of share capital through the following forms of considerations viz. means of cash, issuance of loan capital, or insurance of share capital.

Takeover:

A ‘takeover’ is acquisition and both the terms are used interchangeably. Takeover differs from merger in approach to business combinations i.e. the process of takeover, transaction involved in takeover, determination of share exchange or cash price and the fulfillment of goals of combination all are different in takeovers than in mergers. For example, process of takeover is unilateral and the offeror company decides about the maximum price. Time taken in completion of transaction is less in takeover than in mergers, top management of the offered company being more co-operative.

De-merger or corporate splits or division:

De-merger or split or divisions of a company are the synonymous terms signifying a movement in the company.

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What will it take to succeed?

Funds are an obvious requirement for would-be buyers. Raising them may not be a problem for multinationals able to tap resources at home, but for local companies, finance is likely to be the single biggest obstacle to an acquisition. Financial institution in some Asian markets is banned from leading for takeovers, and debt markets are small and illiquid, deterring investors who fear that they might not be able to sell their holdings at a later date. The credit squeezes and the depressed state of many Asian equity markets have only made an already difficult situation worse. Funds apart, a successful Mergers & Acquisition growth strategy must be supported by three capabilities: deep local networks, the abilities to manage uncertainty, and the skill to distinguish worthwhile targets. Companies that rush in without them are likely to be stumble.

CHAPTER II: REVIEW OF LITERATURE

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Sirower (1997) stated that, “despite a decade of research, empirically based academic literature can offer managers no clear understanding of how to maximize the probability of success in acquisition programs” Writing in Hogarty (1970) reviews 50 years of research and finds no major empirical studies that conclude mergers are more profitable than alternative investments. After 35 years, although we have a better understanding of the causes and consequences of mergers and acquisitions (M&A) activities, it is not clear that mergers create positive wealth effects for the acquiring companies. During this period, the literature grew to include studies that range from straightforward event studies looking at abnormal returns before and after mergers to more complex theoretical models involving signaling mechanisms by acquirers through bidding (Fishman, 1988). The evidence indicates that target companies earn significant positive abnormal returns but that the experience of acquiring firms is mixed (Jensen and Ruback, 1983; Huang and Walkling, 1987).

CHAPTER III: A.J.INSTITUTE OF MANAGEMENT

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Economics/Reasons of Mergers to the company A number of mergers, take-overs and consolidation have taken place in our country in the recent times. One of the major reasons cited, for such mergers, is the liberalization of the Indian economy. Liberalization is forcing companies to enter new businesses, exit from others, and consolidate in some simultaneously. The following are the other important reasons for mergers or amalgamations. Economies of Scale: An amalgamated company will have more resources at its command than the individual companies. This will help in increasing the scale of operations and the economies of large scale will be availed. These economies will occur because of more intensive utilization of production facilities, etc. these economies will be available in horizontal mergers (companies dealing in same line of products) where scope of more intensive use of resources is greater. The economies will occur only up-to a certain point of operations known as optimal point. It is a point where average costs are minimum. When production increases from this point, the cost per unit will go up. Operating Economies: A number of operating economies will be available with the merger of two or more companies. Duplicating facilities in accounting, purchasing and marketing. Etc. will be management emerging from the amalgamation. The amalgamated companies will be in a better position to operate than the amalgamating companies individually. Growth and Diversification: As stated earlier, merger/amalgamation of two or more firms has been used as a dominant business strategy to seek rapid growth and diversification. The merger improves the competitive position of the merged firm as it can command an increased market share. It also offers a special advantage because it enables the merged firm to leap several stages in the process of expansion. In a saturated market, simultaneous expansion and replacement through merger/takeover is more desirable than creating additional capacities through expansion. A merger proposal has a very high growth appeal, and its desirability should always be judged in the ultimate analysis in terms of its contribution to the market A.J.INSTITUTE OF MANAGEMENT

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price of the shares of the merged firm. The merged firm can also seek reduction in the risk levels through diversification of the business operations. The extent, to which risk is reduced, however, depends on the correlation between the earning of the merging (combining) firms. A negative correlation between the combining firms always brings greater reduction in the risk whereas a positive correlation leads to less reduction in risk. Utilization of Tax Shields: When a company with accumulated losses merges with a profit making company it is able to utilize tax shields. A company having losses will not be able to set off losses against future profits, because it is not a profit earning unit. On the other hand if it merges with a concern earning profit then the accumulated losses of one unit will be set of against the future profits of the other unit. In this way the merger will enable the concern to avail tax benefits. Increases in Value: The value of the merged company is greater than the sum of the independent values of the merged companies. For example, if X Ltd. and Y Ltd. merge and form Z ltd., the value of Z Ltd. Is expected to be greater than the sum of the independent values of X Ltd. & Y Ltd. Eliminations of Competition: The merger of two or more companies will eliminate competition among them. The companies will be able to save their advertising expenses thus enabling them to reduce their prices. The consumers will also benefit in the form of cheaper or goods being made available to them. Economic Necessity: Economic necessity may force the merger of some units. It their are two sick units, government may force their merger to improve their financial position and overall working.

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M&A Activities in India: M&A Activities in India: In 2007, there were a total of 676 M&A deals and 405 private equity deals, in 2007, the total value of M&A and PE deals was USD 70 billion, Total M&A deal value was close to USD 51 billion, Private equity deals value increased to USD 19 billion Growth Drivers: • Globalization and increased competition • Concentration of companies to achieve economies of scale • Cash Reserves with corporate Trends: • Cross-border deals are growing faster than domestic deals • Private Equity (PE) houses have funded projects as well as made a few acquisitions in India 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 In year 2008.. • M&A deals in India in 2008 totaled worth USD 19.8 bn • Less compared to last year which stood at 33.1 bn $. • Decline of M&A activity was in line with the global activity. A.J.INSTITUTE OF MANAGEMENT

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• Cross border M&A totaled 8.2 ban $ compared to 18.7 ban $.

Acquirer

Target Company

Country targeted

Deal value ($ ml)

Tata Steel

Corus Group plc

UK

12,000

Hidalgo

Novelist

Canada

5,982

Steel

Videocon

Daewoo Electronics Corp.

Korea

729

Electronics

Dr. Reddy’s Labs

Beta harm

Germany

597

Pharmaceutica l

Suzlon Energy

Hansen Group

Belgium

565

Energy

HPCL

Kenya Petroleum Refinery Ltd.

Kenya

500

Oil and Gas

Ranbaxy Labs

Terapia SA

Romania

324

Pharmaceutica l

Tata Steel

NatSteel

Singapore

293

Steel

Videocon

Thomson SA

France

290

Electronics

VSNL

Teleglobe

Canada

239

Telecom

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Industry

Steel

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CHAPTER V: CASE STUDY

Report: Ranbaxy & Daiichi Sankyo Co. Ltd. Merger

The present study discusses the implications of the merger between Ranbaxy and Daiichi Sankyo, from an intellectual property as well as a market point of view. This analysis is particularly important at this point because of a variety of reasons including the growing preference for generics, increasing dominance of emerging markets such as India, fast approaching patent expiry etc. Also, given the fact that this involves between 2 players who are among the largest among their respective markets, this deal is of great significance. Background Daiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy Laboratories Ltd. from its promoters. Daiichi Sankyo expects to increase its stake in Ranbaxy through various means such as preferential allotment, public offer and preferential issue of warrants to acquire a majority in Ranbaxy, i.e. at least 50.1%. After the acquisition, Ranbaxy will operate as Daiichi Sankyo’s subsidiary but will be managed independently under the leadership of its current CEO & Managing Director Malvinder Singh. The main benefit for Daiichi Sankyo from the merger is Ranbaxy’s low-cost manufacturing infrastructure and supply chain strengths. Ranbaxy gains access to Daiichi Sankyo’s research and development expertise to advance its branded drugs business. Daiichi Sankyo’s strength in proprietary medicine complements Ranbaxy’s leadership in the generics segment and both companies acquire a broader product base, therapeutic focus areas and well distributed risks. Ranbaxy can also function as a low-cost manufacturing base for Daiichi Sankyo. Ranbaxy, A.J.INSTITUTE OF MANAGEMENT

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for itself, gains smoother access to and a strong foothold in the Japanese drug market. The immediate benefit for Ranbaxy is that the deal frees up its debt and imparts more flexibility into its growth plans. Most importantly, Ranbaxy’s addition is said to elevate Daiichi Sankyo’s position from #22 to #15 by market capitalization in the global pharmaceutical market. Synergies The key areas where Daiichi Sankyo and Ranbaxy are synergetic include their respective presence in the developed and emerging markets. While Ranbaxy’s strengths in the 21 emerging generic drug markets can allow Daiichi Sankyo to tap the potential of the generics business, Ranbaxy’s branded drug development initiatives for the developed markets will be significantly boosted through the relationship. To a large extent, Daiichi Sankyo will be able to reduce its reliance on only branded drugs and margin risks in mature markets and benefit from Ranbaxy’s strengths in generics to introduce generic versions of patent expired drugs, particularly in the Japanese market. Both Daiichi Sankyo and Ranbaxy possess significant competitive advantages, and have profound strength in striking lucrative alliances with other pharmaceutical companies. Despite these strengths, the companies have a set of pain points that can pose a hindrance to the merger being successful or the desired synergies being realized. With R&D perhaps playing the most important role in the success of these two players, it is imperative to explore the intellectual property portfolio and the gaps that exist in greater detail. Ranbaxy has a greater share of the entire set of patents filed by both companies in the period 1998-2007. While Daiichi Sankyo’s patenting activity has been rather mixed, Ranbaxy, on the other hand, has witnessed a steady uptrend in its patenting activity until 2005. In fact, during 2007, the company’s patenting activity plunged by almost 60% as against 2006.

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Significant Differences in Patenting Daiichi Sankyo had a more diverse technology spread compared to Ranbaxy. The top four IPCs of Ranbaxy and Daiichi Sankyo accounted for almost 94% and 72% of the total number of patent families analyzed, respectively. An IPC gap analysis for the two players revealed that patent families of these companies were spread across 43 different IPCsHormones and gastro-intestinal drugs are exclusive therapeutic areas that Tea Pharmaceuticals has obtained approvals for compared to Ranbaxy and Daiichi Sankyo in the same period. Barr Pharmaceuticals, on the other hand, held 54 ANDA approvals filed across 15 therapeutic segments. The unique segments of Barr Pharmaceuticals include hormones, uro-genital drugs and bone disorder drugs. Three New Drug Application (NDA) and Biologic License Application (BLA) approvals by the US FDA were obtained by Ranbaxy as of 6 September 2008 for the period January 2003September 2008, while in the same period, Daiichi Sankyo obtained only two approvals. Teva Pharmaceuticals obtained five NDA and BLA approvals while Barr Pharmaceuticals did not obtain any approvals. Post-acquisition Objectives In light of the above analyses, Daiichi Sankyo’s focus is to develop new drugs to fill the gaps and take advantage of Ranbaxy’s strong areas. To overcome its current challenges in cost structure and supply chain, Daiichi Sankyo’s primary aim is to establish a management framework that will expedite synergies. Having done that, the company seeks to reduce its exposure to branded drugs in a way that it can cover the impact of margin pressures on the business, especially in Japan. In a global pharmaceutical industry making a shift towards generics and emerging market opportunities, Daiichi Sankyo’s acquisition of Ranbaxy signals a move on the lines of its global counterparts Novartis and local competitors Astellas Pharma, Eesei and Takeda Pharmaceutical. Post acquisition challenges include managing the different working and business cultures of the two organizations, undertaking minimal and A.J.INSTITUTE OF MANAGEMENT

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essential integration and retaining the management independence of Ranbaxy without hampering synergies. Ranbaxy and Daiichi Sankyo will also need to consolidate their intellectual capital and acquire an edge over their foreign counterparts. Conclusion In summary, Daiichi Sankyo’s move to acquire Ranbaxy will enable the company to gain the best of both worlds without investing heavily into the generic business. The patent perspective of the merger clearly indicates the intentions of both companies in filling the respective void spaces of the other and emerge as a global leader in the pharmaceutical industry. Furthermore, Daiichi Sankyo’s portfolio will be broadened to include steroids and other technologies such as sieving methods, and a host of therapeutic segments such as antiasthmatics, anti-retrovirals, and impotency and anti-malarial drugs, to name a few. Above all, Daiichi Sankyo will now have access to Ranbaxy's entire range of 153 therapeutic drugs across 17 diverse therapeutic indications. Additional NDAs from the US FDA on antihistaminics and anti-diabetics is an added advantage. Through the deal, Ranbaxy has become part of a Japanese corporate framework, which is extremely reputed in the corporate world. As a generics player, Ranbaxy is very well placed in both India and abroad although its share performance belies its true potential. Ranbaxy is also an emerging branded drug manufacturer possessing tremendous clout in terms of strategic alliances with some of the biggest players in the industry. Given Ranbaxy’s intention to become the largest generics company in Japan, the acquisition provides the company with a strong platform to consolidate its Japanese generics business. From one of India's leading drug manufacturers, Ranbaxy can leverage the vast research and development resources of Daiichi Sankyo to become a strong force to contend with in the global pharmaceutical sector. A smooth entry into the Japanese market and access to widespread technologies including, plant, horticulture, veterinary treatment and cosmetic products are some things Ranbaxy can look forward as main benefits from the deal. However, the recent ban on the US imports of more than 30 Ranbaxy drugs is a major pain point for the company now. While Daiichi Sankyo has stressed that it going ahead with the A.J.INSTITUTE OF MANAGEMENT

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deal, it raises some concerns over the impending benefits and has in fact already affected Ranbaxy’s share performance in September 2008. Post the deal, Ranbaxy’s debt will be significantly reduced and will impart more flexibility to pursue growth opportunities. The acquisition corroborates the strong possibility for similar moves in the future, particularly from Japanese players who have begun displaying confidence in Indian patent laws and respect for intellectual property rights

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Valuation in a merger: Determination of share exchange ratio 1. Net Value Asset (NAV) Method

NAV is the sum total of value of asserts (fixed assets, current assets, investment on the date of Balance sheet less all debts, borrowing and liabilities including both current and likely contingent liability and preference share capital). Deductions will have to be made for arrears of preference dividend, arrears of depreciation etc The three steps necessary for valuing share are: 

Valuation of assets



Ascertainment of liabilities



Fixation of the value of different types of equity shares.

2.

Yield Value Method

This method also called profit earning capacity method is based on the assessment of future maintainable earnings of the business. While the past financial performance serves as guide, it is the future maintainable profits that have to be considered. Earnings of the company for the next two years are projected (by valuation experts) and simple or weighted average of these profits is computed 3. Market Value Method

This method is applicable only in case where share of companies are listed on a recognized stock exchange. The average of high or low values and closing prices over a specified previous period is taken to be representative value per share.

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CHAPTER VI: CAUSES FOR FAILURE OF MERGERS AND ACQUISITIONS It is clear from the findings of the earlier scientific studies and reports of consultants that M&As fail quite often and consequently, failed to create value or wealth for shareholders of the acquirer company. A definite answer as to why mergers fail to generate value for acquiring shareholders cannot be provided because mergers fail for a host of reasons. Some of the important reasons for failures of mergers are discussed below: Size Issues: A mismatch in the size between acquirer and target is one of the reasons found for poor acquisition performance. Many acquisitions fail either because of ‘acquisition indigestion’ through buying too big targets or by not giving the smaller acquisitions the time and attention it required

Moreover, when the size of the acquirer is very large when

compared to the target firm, the percentage gains to acquirer will be very low when compared to the higher percentage gains to target firms. They find that the smaller acquirer companies do more profitable acquisitions while larger acquirer companies do deals that cause their shareholders to lose acquisitions. Diversification: Very few firms have the ability to successfully manage the diversified businesses. Lot of studies found that acquisitions into related industries consistently outperform acquisitions into unrelated around 42% of the acquisitions that turned sour were conglomerate acquisitions in which the acquirer and acquired companies lacked familiarity with each other’s businesses. Unrelated diversification has been associated with lower financial performance, lower capital productivity and a higher degree of variance in performance for a variety of reasons including a lack of industry or geographic knowledge, a lack of focus as well as perceived inability to gain meaningful synergies. Unrelated acquisitions which may appear to be very promising may turn out to be a big disappointment in reality. For example, Datta et al. find that the presence of multiple bidders and the conglomerate acquisitions have a negative impact on the wealth of the bidding shareholders.

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Poor Organization Fit: Organizational fit is described as “the match between administrative practices, cultural practices and personnel characteristics of the target and acquirer” states that organisation structure with similar management problem, cultural system and structure will facilitate the effectiveness of communication pattern and improve the company’s capabilities to transfer knowledge and skills. Need for proper organization fit is stressed by management. Mismatch of organization fit leads to failure of mergers. Poor Strategic Fit: A Merger will yield the desired result only if there is strategic fit between the merging companies. But once this is assured, the gains will outweigh the losses. Mergers with strategic fit can improve profitability through reduction in overheads, effective utilization of facilities, the ability to raise funds at a lower cost, and deployment of surplus cash for expanding business with higher returns. But many a time lack of strategic fit between two merging companies, especially lack of synergies results in merger failure. Strategic fit can also include the business philosophies of the two entities (return on investment versus market share), the time frame for achieving these goals (short-term versus long term) and the way in which assets are utilized high capital investment or an asset stripping mentality Striving for Bigness: Size is an important element for success in business. Therefore, there is a strong tendency among managers whose compensation is significantly influenced by size to build big empires the concern with size may lead to acquisitions. Size maximizing firms may engage in activities which have negative net present value Therefore when evaluating an acquisition it is necessary to keep the attention focused on how it will create value for shareholders and not on how it will increase the size of the company. finds that the results of his study are consistent with the takeovers being motivated by maximization of management utility reasons, rather than by the maximization of shareholders wealth. Poor Cultural Fit: The relationship between cultural fit and acquisition implementation is highly related. It is difficult to undergo a successful implementation without adequately addressing the issues of cultural fit. Cultural fit between an acquirer and a target is often one of the most neglected areas of analysis prior to the closing of a deal. However, cultural due

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diligence is every bit as important as careful financial analysis. Lack of cultural fit between the merging firms will amount to misunderstanding, confusion and conflict. Limited Focus: If merging companies have entirely different products, markets systems and cultures, the merger is doomed to failure. Added to that as core competencies are weakened and the focus gets blurred the effect on bourses can be dangerous. Purely financially motivated mergers such as tax driven mergers on the advice of accountant can be hit by adverse business consequences. Conglomerates that had built unfocused business portfolios were forced to sell non-core business that could not withstand competitive pressures. The Tatas for example, sold their soaps business to Hindustan Lever i.e. merger of Tata Oil Mill Company with Hindustan Lever Limited (Banerjee [7]). Failure to Examine the Financial Position: Examination of the financial position of the target company is quite significant before the takeovers are concluded. Areas that require thorough examination are stocks, saleability of finished products, value and quality of receivables, details and location of fixed assets, unsecured loans, claims under litigation, and loans from the promoters. A London Business School study in 1987 highlighted that an important influence on the ultimate success of the acquisition is a thorough audit of the target company before the takeover (Arnold [5]). When ITC took over the paper board making unit of BILT near Coimbatore, it arranged for comprehensive audit of financial affairs of the unit. Many a times the acquirer is mislead by window-dressed accounts of the target Failure to Take Immediate Control: Control of the new unit should be taken immediately after signing of the agreement. ITC did so when they took over the BILT unit even though the consideration was to be paid in 5 yearly instalments. ABB puts new management in place on day one and reporting systems in place by three weeks Failure of Top Management to follow Up: After signing the M&A agreement, the top management should be very active and should make things happen. Initial few months after the takeover determine the speed with which the process of tackling the problems can be achieved. It is very rarely that the bought out company is firing on all cylinders and making a

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lot of money. Top management follow-up is essential to go with a clear road map of actions to be taken and set the pace for implementing once the control is assumed Failure of Leadership Role: Some of the roles leadership should take seriously are modeling, quantifying strategic benefits and building a case for M&A activity and articulating and establishing high standard for value creation. Walking the talk also becomes very important during M&As

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CHAPTER VII: CONCLUSION Mergers and acquisition has become very popular over the years especially during the last two decades owing to rapid changes that have taken place in the business environment. Business firms now have to face increased competition not only from firms within the country but also from international business giants thanks to globalization, liberalization, technological changes and other changes. Generally the objective of M&As is wealth maximization of shareholders by seeking gains in terms of synergy, economies of scale, better financial and marketing advantages, diversification and reduced earnings volatility, improved inventory management, increase in domestic market share and also to capture fast growing international markets abroad. But astonishingly, though the number and value of M&As are growing rapidly, the results of the studies on the impact of mergers on the performance from the acquirers’ shareholders perspective have been highly disappointing. In this paper an attempt has been made to draw the results of some of the earlier studies while analyzing the causes of failure of majority of the mergers. While making the merger deals, it is necessary not only to look into the financial aspects of the deal but also to analyse the cultural and people issues of both the concerns for proper post-acquisition integration and for making the deal successful. But it is unfortunate that in many deals only financial and economic benefits are considered while neglecting the cultural and people issues. Thus in nut shell we can say that M&A have become common in our country’s business set up. There is a tremendous need for people to grow and become global players expanding their business spheres. If success is to be achieved in M&A cohesive, well integrated and motivated workforce is required who is willing to take on the challenges that arise in the process of M&A and there should be proper organization among employees and they should be provided with proper working conditions.

BIBLIOGRAPHY: A.J.INSTITUTE OF MANAGEMENT

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1. Pandey, I.M., financial management, New Delhi, vikas publishing house pvt. Ltd., 1978. Khan&Jain, financial management, Tata McGraw hills 2. H.R. MACHIRAJU, Mergers Acquisitions and Takeovers, New Age International (P)

Limited, 2003, Page 169 3. J. Fred Weston & Samuel C. Weaver, Tata McGraw Hill Publishing Company Limited, New Delhi, 2002, Page 3 4. David m. schweiger, Merger and Integration, McGraw Hill, 2002, page 4 5. J. Fred Weston, Kwang S. Chung and Susan E. Hoag, ‘ Mergers, Restructuring and

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