Assignment Unit 1_1

RICHA BANSAL
08215903911
MBA-IV-A
Q1: e!ine Me"ge"# $%&'(in )i!!e"ent t*&es +! me"ge"s ,it- e%(m&'es# .-(t
("e t-e /+st (n) 0ene!its +! me"ge"1
ANS.$R: The combining of two or more entities into one, through a purchase acquisition or
a pooling of interests. Mergers come into play in the world of business for two very different
reasons. The first is when you've decided it makes sense to join forces with another company to
reap the rewards that come from your combined strengths.
A smart business merger can help you enter a new market, reach more customers, freee out a
competitor or fill a gap in your company's abilities. Mergers can get you on the fast track to
become more competitive. !ith a complementary partner, your business can acquire products,
distribution channels, technical knowledge, infrastructure or cash to propel you to a new level of
success. The fle"ibility and power boost they provide can be a key strategic tool for today's
entrepreneurs. And the best part is that they can go wherever your ideas take them.
There are three major types of mergers#$
H+"i2+nt(' me"ge":- is a combination of two or more firms in the same area of business.
%or e"ample, combining of two book publishers or two luggage manufacturing
companies to gain dominant market share.
Ve"ti/(' me"ge":- is a combination of two or more firms involved in different stages of
production or distribution of the same product. %or e"ample, joining of a T&
manufacturing 'assembling( company and a T& marketing company or joining of a
spinning company and a weaving company. &ertical merger may take the form of
forward or backward merger. !hen a company combines with the supplier of material, it
is called backward merger and when it combines with the customer, it is known as
forward merger.
C+ng'+me"(te me"ge":- is a combination of firms engaged in unrelated lines of business
activity. %or e"ample, merger of different businesses like manufacturing of cement
products, fertilier products, electronic products, insurance investment and advertising
agencies. )*T and &oltas )td are e"amples of such mergers.
A)3(nt(ges +! Me"ge"s
+ A merger may be accomplished ta"$free for both parties.
+ A merger lets the target 'in effect, the seller( realie the appreciation potential of the merged
entity, instead of being limited to sales proceeds.
+ A merger allows the shareholders of smaller entities to own a smaller piece of a larger pie,
increasing their overall net worth.
+ A merger of a privately held company into a publicly held company allows the target company
shareholders to receive a public company's stock, despite the liquidity restrictions of ,-. /ule
011a.
+ A merger allows the acquirer to avoid many of the costly and time$consuming aspects of asset
purchases, such as the assignment of leases and bulk$sales notifications.
+ 2f considerable importance when there are minority stockholders is the fact that upon obtaining
the required number of votes in support of the merger, the transaction becomes effective and
dissenting shareholders are obliged to go along.
is()3(nt(ges +! Me"ge"s
3iseconomies of scale if business become too large, which leads to higher unit costs.
.lashes of culture between different types of businesses can occur, reducing the
effectiveness of the integration.
May need to make some workers redundant, especially at management levels $ this may
have an effect on motivation.
May be a conflict of objectives between different businesses, meaning decisions are
more difficult to make and causing disruption in the running of the business.
Q2: ."ite ( s-+"t n+te +n 45"+/ess +" ste&s in3+'3e) in me"ge"s#6
ANS.$R: Merger and acquisition process is the most challenging and most critical one when
it comes to corporate restructuring. 2ne wrong decision or one wrong move can actually reverse
the effects in an unimaginable manner. 4t should certainly be followed in a way that a company
can gain ma"imum benefits with the deal.
7+''+,ing ("e s+me +! t-e im&+"t(nt ste&s in t-e M8A &"+/ess:
B9siness V('9(ti+n
5usiness valuation or assessment is the first process of merger and acquisition. This step
includes e"amination and evaluation of both the present and future market value of the target
company. A thorough research is done on the history of the company with regards to capital
gains, organiational structure, market share, distribution channel, corporate culture, specific
business strengths, and credibility in the market. There are many other aspects that should be
considered to ensure if a proposed company is right or not for a successful merger.
5"+&+s(' 5-(se
6roposal phase is a phase in which the company sends a proposal for a merger or an acquisition
with complete details of the deal including the strategies, amount, and the commitments. Most of
the time, this proposal is send through a non$binding offer document.
5'(nning $%it
!hen any company decides to sell its operations, it has to undergo the stage of e"it planning.
The company has to take firm decision as to when and how to make the e"it in an organied and
profitable manner. 4n the process the management has to evaluate all financial and other business
issues like taking a decision of full sale or partial sale along with evaluating on various options
of reinvestments.
St"9/t9"ing B9siness e('
After finaliing the merger and the e"it plans, the new entity or the take over company has to
take initiatives for marketing and create innovative strategies to enhance business and its
credibility. The entire phase emphasie on structuring of the business deal.
St(ge +! Integ"(ti+n
This stage includes both the company coming together with their own parameters. 4t includes the
entire process of preparing the document, signing the agreement, and negotiating the deal. 4t also
defines the parameters of the future relationship between the two.
:&e"(ting t-e Vent9"e
After signing the agreement and entering into the venture, it is equally important to operate the
venture. This operation is attributed to meet the said and pre$defined e"pectations of all the
companies involved in the process. The M*A transaction after the deal include all the essential
measures and activities that work to fulfill the requirements and desires of the companies
involved.