1

CHAPTER 1
INRODUCTION
The process of mergers and acquisitions has gained substantial importance in today's corporate
world. This process is extensively used for restructuring the business organizations. Mergers and
acquisitions (abbreviated M&A) is an aspect of corporate strategy, dealing with the buying,
selling, dividing and combining of different companies and similar entities that can help an
enterprise grow rapidly in its sector or location of origin, or a new field or new location.
In India, The concept of merger and acquisition in India was not popular until the year 1988 and
thengovernment bodies initiated mergers and acquisitions. Some well known financial
organizations also took the necessary initiatives to restructure the corporate sector of India by
adopting the mergers and acquisitions policies.
The Indian economic reform since 1991 has opened up a whole lot of challenges both in the
domestic and international spheres. The increased competition in the global market has prompted
the Indian companies to go for mergers and acquisitions as an important strategic choice. India
has emerged as one of the top countries with respect to merger and acquisition deals. In 2007, the
first two months alone accounted for merger and acquisition deals worth $40 billion in India.
The trends of mergers and acquisitions in India have changed over the years. The immediate
effects of the mergers and acquisitions have also been diverse across the various sectors of the
Indian economy.

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. In other words, it 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,

Debentures in the transferee company,

Cash, or

A mix of the above modes.

Merger is a financial tool that is used for enhancing long-term profitability by expanding their
operations. Mergers occur when the merging companies have their mutual consent as different
from acquisitions, which can take the form of a hostile takeover.
Managers are concerned with improving operations of the company, managing the affairs of the
company effectively for all round gains and growth of the company which will provide them
better deals in raising their status, perks and fringe benefits. If we trace back to history, it is
observed that very few mergers have actually added to the share value of the acquiring company
and corporate mergers may promote monopolistic practices by reducing costs, taxes etc.

FORMS OF MERGERS
Merger or acquisition depends upon the purpose of the offeror company it wants to achieve.
Based on the offerors objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.

(A) Horizontal combination:

It is a merger of two competing firms which are at the same stage of industrial
process. The acquiring firm belongs to the same industry as the target company.
The main purpose of such mergers is to obtain economies of scale in production by
eliminating duplication of facilities and the operations and broadening the product
line, reduction in investment in working capital, elimination in competition
concentration in product, reduction in advertising costs, increase in market
segments and exercise better control on market

(B) Vertical combination

A company would like to take over another company or seek its merger with that company to
expand espousing backward integration to assimilate the resources of supply and forward
integration towards market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished goods, implements its
production plans as per the objectives and economizes on working capital investments. In other
words, in vertical combinations, the merging undertaking would be either a supplier or a buyer
using its product as intermediary material for final production.
The following main benefits accrue from the vertical combination to the acquirer company:
1. It gains a strong position because of imperfect market of the intermediary products, scarcity of
resources and purchased products;
2. Has control over products specifications.

Online Retailers

Big Box Retailers

Distributors

Manufactures

Suppliers

(C) Circular combination:

Companies producing distinct products seek amalgamation to share common
distribution and research facilities to obtain economies by elimination of cost on
duplication and promoting market enlargement. The acquiring company obtains
benefits in the form of economies of resource sharing and diversification

10

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The basic purpose of such amalgamations remains utilization of financial resources
and enlarges debt capacity through re-organizing their financial structure so as to service the
shareholders by increased leveraging and EPS, lowering average cost of capital and thereby
raising present worth of the outstanding shares. Merger enhances the overall stability of the
acquirer company and creates balance in the companys total portfolio of diverse products and
production processes.

11

ACQUISITION

An Acquisition usually refers to a purchase of a smaller firm by a larger one. Acquisition, also
known as a takeoveror abuyout, is the buying of one company by another.
Acquisitions or takeovers occur between the bidding and the target company. There may be
either hostile or friendly takeovers. 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 ACQISITION
An acquisition may be affected by:
(a) An 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) making takeover offer to the general body of shareholders;
(d) purchase of new shares by private treaty;
12

(e) Acquisition of share capital through the following forms of considerations viz. means of
cash, issuance of loan capital, or insurance of share capital.

TYPES OF ACQUISITION
There are different types of Acquisitions/takeover:-

1. Friendly takeovers
2. Hostile takeovers
3.Reverse takeovers

1. Friendly takeovers
Before a bidder makes an offer for another company, it usually first informs that
company's board of directors. If the board feels that accepting the offer serves
shareholders better than rejecting it, it recommends the offer be accepted by the
shareholders.

In a private company, because the shareholders and the board are usually the same
people or closely connected with one another, private acquisitions are usually
friendly. If the shareholders agree to sell the company, then the board is usually of

13

the same mind or sufficiently under the orders of the shareholders to cooperate with
the bidder

2. Hostile takeovers
A hostile takeover allows a suitor to bypass a target company's management unwilling to agree to
a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the
offer, but the bidder continues to pursue it, or the bidder makes the offer without informing the
target company's board beforehand.
A hostile takeover can be conducted in several ways. A tender offer can be made where the
acquiring company makes a public offer at a fixed price above the current market price. Tender
offers in the USA are regulated with the Williams Act.

An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough
shareholders, usually a simple majority, to replace the management with a new one which will
approve the takeover.
Another method involves quietly purchasing enough stock on the open market,
known as a creeping tender offer, to effect a change in management. In all of these
ways, management resists the acquisition but it is carried out anyway

14

3.Reverse takeovers
A reverse takeover is a type of takeover where a private company acquires a public company.
This is usually done at the instigation of the larger, private company, the purpose being for the
private company to effectivelyfloat itself while avoiding some of the expense and time involved
in a conventional IPO. However, under AIM rules, a reverse take-over is an acquisition or
acquisitions in a twelve month period which for an AIM company would:

exceed 100% in any of the class tests; or

result in a fundamental change in its business, board or voting control; or

in the case of an investing company, depart substantially from the investing strategy stated in its
admission document or, where no admission document was produced on admission, depart
substantially from the investing strategy stated in its pre-admission announcement or, depart
substantially from the investing strategy.

15

Mergers and Acquisitions History

Mergers and Acquisitions History can effectively help in gathering information
about

the

significant

mergers

and

acquisitions

of

the

world.

Mergers and Acquisitions History often surprises us as we come to know that the
concepts of Mergers and Acquisitions are not new, on the contrary they are
continuing from the early years of history.
Mergers and Acquisitions History helps us to understand the evolution of the
concepts of Mergers and Acquisitions in the world. If we involve in the detailed
analysis of the History of Merger of Acquisitions, we will find that Mergers and
Acquisitions started to take place in the world from very early years.
US Mergers and Acquisitions History
In USA, mergers and acquisitions started in twentieth century. After that Mergers
and Acquisitions continued to occur in cycle. These cycles of Mergers and
Acquisitions, took place in USA in 1929, in the last half of 1960s, in the first half
of 1980s and again in the last half of 1990s. Here, it should be mentioned that, by
cycle we are referring to the period, in which the maximum number of mergers
took place.
Among the mergers and acquisitions cycles cited above, the most significant
mergers of USA took place in the last half of 1990s. The reason of this was that,
the stock market was quite strong in US in that period and this strong stock
market supported the high incidence of mergers and acquisitions. The mergers
and acquisitions of this period involved big brands and huge amount of dollars.
Significant

Mergers

and

Acquisitions

of

the

History

In 1987, an Australian Company named Stephen Jaques Stone James, which

was a partnership company with 79 partners, merged with the company named
16

Mallesons. After the Merger, the new joint company was known as Mallesons
Stephen Jaques. This Merger contributed significantly to the telecommunication
sector

development

in

Australia.

In 1988, Tower Federal Savings Bank of Indiana acquired two financial

institutions of Michigan. Then in 1991, the Standard Federal Bank strengthened
their position in Ohio by acquiring a financial institution of Toledo. These two
acquisitions

had

great

impact

on

the

banking

Sector

of

USA.

In 2001, a merger between Association of European Universities and the

Confederation of European Union Rectors Conference took place in Spain. This
merger provided more power to the University community of Europe

International Mergers and Acquisitions

The opening up of the European countries tointernational mergers and
acquisitions and the economic reforms in developing countries provided major
boost to international mergers and acquisitions since the 1990s.

Foreign investment gets major impetus from international mergers and

acquisitions. While there are various advantages of international mergers and
acquisitions, certain impediments in the form of regulatory restrictions also exist.
The adoption of economic reforms in many countries in the last two decades of
the 20th century opened up opportunities ofinternational mergers and
acquisitions. With different countries opening up their economies to foreign
investors, international mergers and acquisitions has received. The European
economy also opened up to foreign mergers and acquisitions in the 1990s, which
resulted in M&A (merger and acquisition) activities of large volumes taking place
across Europe.
17

While USA has always been the pioneer in merger and acquisition activities, UK
too has registered high levels of mergers and acquisitions. With the European
countries gaining momentum in mergers and acquisitions, international mergers
and acquisitions also received a major boost.

There are various benefits that accrue to firms that undertake international
mergers and acquisitions. Cross border mergers and acquisitions are effective in
boosting Foreign Direct Investment (FDI). For international investors, it is easier
to invest through a merger or an acquisition. International mergers and
acquisitions provide access to infrastructure and customer base in a country
which is quite difficult to build from the scratch. Moreover an existing brand name
in a country provides strong business edge. Access to local markets of different
countries is possible through international mergers and acquisitions.
With the developing countries adopting liberal economic policies, the incentives
of firms in the developed nations to indulge in mergers and acquisitions in these
countries are huge. International mergers and acquisitions provide a way to tap
the markets of these countries. On the other hand, for these developing countries
international mergers and acquisitions provide them access to improved
technologies and more productive operative mechanisms.
However there are certain impediments to international mergers and acquisitions.
Regulations of different countries play an important role. In some countries
certain sectors are prohibited from international mergers and acquisitions, while
for some other sectors certain conditions need to be fulfilled. In China, for
instance, laws regarding international mergers and acquisitions are quite
stringent.

18

US Mergers and Acquisitions

More mergers and acquisitions take place in the USA than in any other country in the
world. Real estate, finance and insurance are among the top sectors in terms of
mergers and acquisitions in the USA. In the USA large firms are more likely to undergo
mergers or acquisitions than smaller firms. US mergers and acquisitions have a major
impact on jobs and employment.
Mergers and acquisitions have been higher in USA than any other country in the world.
In the 1990s mergers and acquisitions in the United States of America accelerated
rapidly. The effects of mergers and acquisitions on the jobs and business and on the
overall US economy have been substantial. Takeovers and mergers of record values,
unmatched in any other country have taken place in various sectors United States of
America. Mergers and acquisitions have not been uniform across all industries in the
USA. In the 1990s majority of the mergers and acquisitions in took place in real estate,
finance and insurance sectors. An average of 6.4% firms in these sectors were merged
or acquired during the period 1990-1994. The industries with high employment that had
undergone high rate of mergers and acquisitions included banks, hospitals, restaurants
and grocery stores. Almost 25% of the employees in these sectors found themselves
working under new employers during this period due to mergers and acquisitions. More
than 4000 establishments in these sectors were acquired during this period.
A total of almost 100000 firms were merged or taken over in the first half of the 1990s.
Large firms in the US are more likely to undergo mergers or acquisitions than smaller
firms. The value of mergers and acquisitions in larger firms has expectedly been much
higher. It has been observed that only 1.6% of small firm locations were merged or
acquired between 1990 and 1994. Large firms preferred to merge with or acquire other
large firms. Small firms also acquired other firms. Such acquisitions were restricted to
single units of other small firms.
A major impact of mergers and acquisitions was in terms of employment. Downsizing
took place in large firms that were taken over. On the other hand mergers and
19

acquisitions in many sectors led to rapid creation of jobs thus leading to higher
employment. Another positive impact was that many employees in small firms found
themselves working for large companies as a result of mergers and acquisitions in the
United States of America.

Mergers and Acquisitions in China

Mergers and acquisitions have grown significantly in China in recent years.
This fast growth in mergers and acquisitions in China can be attributed to
economic reforms and Chinas accession to WTO.

Government agencies in China play a strong supervisory role in approving

mergers and acquisitions.
Mergers and acquisitions have played a significant role in the rapid growth of
Chinas economy in recent years. Potential of acquisitions in China is large given
the rapid expansion in business in the country. While mergers and acquisitions
were almost unheard in China even in the mid 1990s, they have played an
important role in foreign investment in China in recent years.
Reasons for growth of mergers and acquisitions in China
Two factors played an important role in the fast growth of mergers and
acquisitions in China
Economic reforms in China reforms in China led to robust growth which led
to increased mergers and acquisitions
Chinas accession to World Trade Organization (WTO) Chinas accession to
WTO, opened up the doors of foreign investment to various industry sectors. This
also had considerable impact on the growth of mergers and acquisitions in
China.
However an important role is played by the Chinese government in regulating the
merger and acquisition activities in China. Both commercial and social aspects
are taken into consideration by the Chinese government in the review and
approval of mergers and acquisitions.

20

Government agencies supervising mergers and acquisitions in China

The government agencies that play an important role in regulating mergers and
acquisitions in China are
The Ministry of Commerce The Ministry of Commerce regulates foreign
investment in China and has the authority to supervise and approve mergers and
acquisitions.
The State Development and Reform Commission (SDRC)- This agency
supervises the restructuring of public sector firms and also approves foreign
investment. Thus foreign firms investing in mergers or acquisitions needs to get
approval from the State Development and Reform Commission
The State-Owned Assets Supervision and Administration Commission
(SASAC) The SASAC supervises mergers and acquisitions of enterprises
owned by the state.
The China Securities Regulatory Commission (CSRC) The CSRC monitors
the capital markets of China and plays an important role in merger and
acquisition transactions.
Apart from these four, other government agencies may play a role in mergers or
acquisitions depending on the specific case.
While stringent Chinese laws have characterized the process of mergers and
acquisitions in China, efforts are being made in recent years to induce greater
flexibility to facilitate the process of mergers and acquisitions in China

21

CHAPTER 2
Corporate Mergers and Acquisitions
Corporate Mergers and Acquisitions are something very crucial for any
countrys economy. This is so because the Corporate Mergers and Acquisitions
can result in significant restructuring of the industries and can contribute to rapid
growth of industries by generating Economies of Scale.

Corporate Mergers and Acquisitions influence the economy as a whole as

through restructuring of industries. These Corporate Mergers and Acquisitions
increases competition in the market and raises the vulnerability of the
stockholders as the value of stocks experience ups and downs after a merger or
acquisition.
Although the concept of Merger and Acquisition are different from one another,
both can be used as engines of growth. Corporate Mergers and Acquisitions are
instruments which can instantly result in expansion of production capacity.
Corporate Mergers and Acquisitions results in Skill Transfer and other Sharing
Activities. After a company is merged with another or is acquired by a bigger one,
the former gains in terms of comparative advantage. After a Corporate Merger or
Acquisition, production takes place on a large scale. This large scale production
generates economies of scale. So, in a way Corporate Mergers and Acquisitions
help companies to attain rapid growth.
A merger or acquisition not only benefits the big firm but also benefits the target
firm. The target firm can get such a high bid that it exceeds the real market value
of the target company. This can be possible in two cases. Firstly, when acquiring
of the target firm is really crucial for the firm who wants to acquire it and when the
target firm is more valuable to the acquiring firm than to any other bidder firm.
Secondly, when the bidder firm is confident of acquiring comparative advantage
in a short span through the acquisition of the target firm.
In case of a Corporate Merger or Acquisition, the distribution of value between
the shareholders of the target company and the bidder company depends
22

significantly on the relative bargaining power of the bidder firm and the target
firm.

FOR EXAMPLE-

Airline Mergers and Acquisitions

Airline mergers and acquisitions are on the rise across the globe. Theses mergers
and acquisitions are highly strategic involving several considerations.

Moreover airline mergers and acquisitions bear serious implications for travelers as well
as airline employees. Important issues related to airline mergers and acquisitions are
time, approvals, efficiency, competition, passenger benefits and strife.
The airlines industry is abuzz with news of mergers and acquisitions. In the last few
years airline mergers and acquisitions have been a growing trend in several countries
across the globe. However mergers and acquisitions in the aviation industry are highly
strategic in nature and are undertaken after taking into consideration several important
factors.
Some of the important factors considered by airlines in taking merger and acquisition
decisions are
The coverage area of the other airline. Strategically an airline would like to merge with
or acquire an airline that operates in routes different from its own. This helps in
expanding service coverage and avoiding overlapping of flight schedules.
The quality of service and brand image of the other airline.
If the other airline has any partnership with a rival group of airlines.

From the point of view of customers mergers and acquisitions may lead to increased
airfares. This is because mergers and acquisitions reduce the number of operators
thereby reducing competition and pushing up prices in the aviation industry.
23

Airline mergers and acquisitions also have important impacts on the employees of
the participating airlines.
The major concerns that airline employees are faced with in case of mergers and
acquisitions are
Layoffs Mergers and acquisitions in most cases are accompanied by layoffs.
New job rules
Salary concerns The new acquiring airline or the new group arising out of a merger
may not pay the old salaries
Pensions and other benefits.
Seniority A senior employee of an airline that is acquired may find himself to be not
considered senior by the new employer.
Some of the important issues related to airline mergers and acquisitions are
Time Airline mergers and acquisitions take much longer time to materialize than
mergers and acquisitions in other industries. This is due to the fact that a lot of
considerations are involved from costs to operational issues which are generally large in
magnitude and complex in nature.
Approvals Approvals are required from governments, often from different levels and
different authorities to establish airline mergers and acquisitions.
Efficiency Airline mergers and acquisitions can lead to cost efficiency of the
operators by the elimination of overlapping routes. For the travelers however, this often
leads to lesser frequency of flights.
Competition Mergers and acquisitions in the airline industry help to reduce
competition significantly. This helps airlines to achieve higher operating margins. On the
other hand, passengers may face higher airfares.
Passenger Benefits Passengers, who are enlisted for frequent-travel schemes and
other similar ones, will have higher mileage pints.
Strife Airline mergers and acquisitions are often accompanied by strife related to
seniority issues, new work rules, etc.

24

REASON FOR MERGERS AND ACQUISITIONS

Every merger has its own unique reasons why the combining of two companies is a good
business decision. The underlying principle behind mergers and acquisitions ( M & A ) is
simple: 2 + 2 = 5. The value of Company A is $ 2 billion and the value of Company B is $ 2
billion, but when we merge the two companies together, we have a total value of $ 5 billion.
The joining or merging of the two companies creates additional value which we call "synergy"
value.
Synergy value can take three forms:
1. Revenues: By combining the two companies, we will realize higher revenues then if the
two companies operate separately.
2. Expenses: By combining the two companies, we will realize lower expenses then if the
two companies operate separately.
3. Cost of Capital: By combining the two companies, we will experience a lower overall cost
of capital.
For the most part, the biggest source of synergy value is lower expenses. Many mergers are
driven by the need to cut costs. Cost savings often come from the elimination of redundant
services, such as Human Resources, Accounting, Information Technology, etc. However,
the best mergers seem to have strategic reasons for the business combination. These
strategic reasons include:
Positioning - Taking advantage of future opportunities that can be exploited when the two
companies are combined. For example, a telecommunications company might improve
25

its position for the future if it were to own a broad band service company. Companies
need to position themselves to take advantage of emerging trends in the marketplace.
Gap Filling - One company may have a major weakness (such as poor distribution)
whereas the other company has some significant strength. By combining the two
companies, each company fills-in strategic gaps that are essential for long-term survival.
Organizational Competencies - Acquiring human resources and intellectual capital can
help improve innovative thinking and development within the company.
Broader Market Access - Acquiring a foreign company can give a company quick access
to emerging global markets.
Mergers can also be driven by basic business reasons, such as:
Bargain Purchase - It may be cheaper to acquire another company then to invest
internally. For example, suppose a company is considering expansion of fabrication
facilities. Another company has very similar facilities that are idle. It may be cheaper to
just acquire the company with the unused facilities then to go out and build new facilities
on your own.
Diversification - It may be necessary to smooth-out earnings and achieve more consistent
long-term growth and profitability. This is particularly true for companies in very mature
industries where future growth is unlikely. It should be noted that traditional financial
management does not always support diversification through mergers and acquisitions. It
is widely held that investors are in the best position to diversify, not the management of
companies since managing a steel company is not the same as running a software
company.
Short Term Growth - Management may be under pressure to turnaround sluggish growth
and profitability. Consequently, a merger and acquisition is made to boost poor
performance.
Undervalued Target - The Target Company may be undervalued and thus, it represents a
good investment. Some mergers are executed for "financial" reasons and not strategic
reasons. For example, Kohlberg Kravis & Roberts acquires poor performing companies
and replaces the management team in hopes of increasing depresse
PROCESS OF MERGERS AND ACQUISITION
The Merger & Acquisition Process can be broken down into five phases:
Phase 1 - Pre Acquisition Review: The first step is to assess your own situation and
26

determine if a merger and acquisition strategy should be implemented. If a company expects

difficulty in the future when it comes to maintaining core competencies, market share, return
on capital, or other key performance drivers, then a merger and acquisition (M & A) program
may be necessary.
It is also useful to ascertain if the company is undervalued. If a company fails to protect its
valuation, it may find itself the target of a merger. Therefore, the pre-acquisition phase will
often include a valuation of the company - Are we undervalued? Would an M & A Program
improve our valuations?
The primary focus within the Pre Acquisition Review is to determine if growth targets (such as
10% market growth over the next 3 years) can be achieved internally. If not, an M & A Team
should be formed to establish a set of criteria whereby the company can grow through
acquisition. A complete rough plan should be developed on how growth will occur through M
& A, including responsibilities within the company, how information will be gathered, etc.
Phase 2 - Search & Screen Targets: The second phase within the M & A Process is to
search for possible takeover candidates. Target companies must fulfill a set of criteria so that
the Target Company is a good strategic fit with the acquiring company. For example, the
target's drivers of performance should compliment the acquiring company. Compatibility and
fit should be assessed across a range of criteria - relative size, type of business, capital
structure, organizational strengths, core competencies, market channels, etc.
It is worth noting that the search and screening process is performed in-house by the
Acquiring Company. Reliance on outside investment firms is kept to a minimum since the
preliminary stages of M & A must be highly guarded and independent.
Phase 3 - Investigate & Value the Target: The third phase of M & A is to perform a more
detail analysis of the target company. You want to confirm that the Target Company is truly a
good fit with the acquiring company. This will require a more thorough review of operations,
strategies, financials, and other aspects of the Target Company. This detail review is called
"due diligence." Specifically, Phase I Due Diligence is initiated once a target company has
been selected. The main objective is to identify various synergy values that can be realized
through an M & A of the Target Company. Investment Bankers now enter into the M & A
process to assist with this evaluation.
A key part of due diligence is the valuation of the target company. In the preliminary phases
of M & A, we will calculate a total value for the combined company. We have already
calculated a value for our company (acquiring company). We now want to calculate a value
27

for the target as well as all other costs associated with the M & A. The calculation can be
summarized as follows:
Value of Our Company (Acquiring Company) $ 560
Value of Target Company 176
Value of Synergies per Phase I Due Diligence 38
Less M & A Costs (Legal, Investment Bank, etc.) ( 9)
Total Value of Combined Company $ 765
Phase 4 - Acquire through Negotiation: Now that we have selected our target company, it's
time to start the process of negotiating a M & A. We need to develop a negotiation plan
based on several key questions:
How much resistance will we encounter from the Target Company?
What are the benefits of the M & A for the Target Company?
What will be our bidding strategy?
How much do we offer in the first round of bidding?
The most common approach to acquiring another company is for both companies to reach
agreement concerning the M & A; i.e. a negotiated merger will take place. This negotiated
arrangement is sometimes called a "bear hug." The negotiated merger or bear hug is the
preferred approach to a M & A since having both sides agree to the deal will go a long way to
making the M & A work. In cases where resistance is expected from the target, the acquiring
firm will acquire a partial interest in the target; sometimes referred to as a "toehold position."
This toehold position puts pressure on the target to negotiate without sending the target into
panic mode.
In cases where the target is expected to strongly fight a takeover attempt, the acquiring
company will make a tender offer directly to the shareholders of the target, bypassing the
target's management. Tender offers are characterized by the following:
The price offered is above the target's prevailing market price.
The offer applies to a substantial, if not all, outstanding shares of stock.
The offer is open for a limited period of time.
The offer is made to the public shareholders of the target.
A few important points worth noting:
Generally, tender offers are more expensive than negotiated M & A's due to the
resistance of target management and the fact that the target is now "in play" and may
attract other bidders.
28

Partial offers as well as toehold positions are not as effective as a 100% acquisition of
"any and all" outstanding shares. When an acquiring firm makes a 100% offer for the
outstanding stock of the target, it is very difficult to turn this type of offer down.
Another important element when two companies merge is Phase II Due Diligence. As you
may recall, Phase I Due Diligence started when we selected our target company. Once we
start the negotiation process with the target company, a much more intense level of due
diligence (Phase II) will begin. Both companies, assuming we have a negotiated merger, will
launch a very detail review to determine if the proposed merger will work. This requires a very
detail review of the target company - financials, operations, corporate culture, strategic
issues, etc.
Phase 5 - Post Merger Integration: If all goes well, the two companies will announce an
agreement to merge the two companies. The deal is finalized in a formal merger and
acquisition agreement. This leads us to the fifth and final phase within the M & A Process, the
integration of the two companies.
Every company is different - differences in culture, differences in information systems,
differences in strategies, etc. As a result, the Post Merger Integration Phase is the most
difficult phase within the M & A Process. Now all of a sudden we have to bring these two
companies together and make the whole thing work. This requires extensive planning and
design throughout the entire organization. The integration process can take place at three
levels:
1. Full: All functional areas (operations, marketing, finance, human resources, etc.) will be
merged into one new company. The new company will use the "best practices" between
the two companies.
2. Moderate: Certain key functions or processes (such as production) will be merged
together. Strategic decisions will be centralized within one company, but day to day
operating decisions will remain autonomous.
3. Minimal: Only selected personnel will be merged together in order to reduce
redundancies. Both strategic and operating decisions will remain decentralized and
autonomous.
If post merger integration is successful, then we should generate synergy values. However,
before we embark on a formal merger and acquisition program, perhaps we need to

29

understand

the

realities

of

mergers

and

acquisitions.

CHAPTER 3
Legal and Regulatory Considerations
When one company decides to acquire another company, a series of negotiations will take
place between the two companies. The acquiring company will have a well-developed
negotiating strategy and plan in place. If the Target Company believes a merger is possible,
the two companies will enter into a "Letter of Intent."
The Letter of Intent outlines the terms for future negotiations and commits the Target
Company to giving serious consideration to the merger. A Letter of Intent also gives the
acquiring company the green light to move into Phase II Due Diligence. The Letter of Intent
attempts to answer several issues concerning the proposed merger:
1. How will the acquisition price be determined?
2. What exactly are we acquiring? Is it physical assets, is it a controlling interest in the
target, is it intellectual capital, etc.?
3. How will the merger transaction be designed? Will it be an outright purchase of assets?
Will it be an exchange of stock?
4. What is the form of payment? Will the acquiring company issue stock, pay cash, issue
notes, or use a combination of stock, cash, and/or notes?
5. Will the acquiring company setup an escrow account and deposit part of the purchase
price? Will the escrow account cover unrecorded liabilities discovered from due
diligence?
6. What is the estimated time frame for the merger? What law firms will be responsible for
creating the M & A Agreement?
7. What is the scope of due diligence? What records will be made available for completing
due diligence?
8. How much time will the Target Company allow for negotiations? The Letter of Intent will
usually prohibit the Target Company from "shopping itself" during negotiations.
9. How much compensation (referred to as bust up fees) will the acquiring company be
entitled to in the event that the target is acquired by another company? Once news of the
proposed merger leaks out, the Target Company is "in play" and other companies may
make a bid to acquire the Target Company.
10. Will there be any operating restrictions imposed on either company during negotiations?
30

For example, the two companies may want to postpone hiring new personnel, investing in
new facilities, issuing new stock, etc. until the merger has been finalized.

Chapter

11. If the two companies are governed by two states or countries, which one will govern the
merger transaction?
12. Will there be any adjustment to the final purchase price due to anticipated losses or
events prior to the closing of the merger?

31

Motives for Merger

1. To Gain Scale:
In competitive environment, size matters and consolidation is the only way to stay afloat. The major
driving force underlying recent mergers and acquisitions by Indian companies is to gain heft and scale so
as to compete in the global market.
For instance, Tata Steels acquisition of Corus, Hindalcos acquisition of Navelis, Tata Teas acquisition of
Tetley, Esser Steel deal for Algoma and many other deals were driven by consideration of gaining scale.
Tata Steel acquired Corus-a player that was more than five times its own size and leaped to fifth position
from fifty-sixth position in Global Steel league. Similarly Hindalcos $ 6 billion acquisition of Atlanta bared
Novelis has pitch-forked into one of the five integrated steel firms in the world. Ranbaxys acquisition of
Mercks generic portfolio pole-vaulted it in the top 10 leagues in global generics.
2. To Avail Operating Economies:
Firms are merged to derive operating economies in terms of elimination of duplicate facilities, reduction of
cost, increased efficiency, better utilization of capacities and adoption of latest technology. Operating
economies at the staff level can be achieved through centralization or combination of such departments
as personnel accounting, advertising and finance, which are common to both organizations.
Merger of Reliance Petrochemicals with Reliance industries and, merger of IBP with IOC were aimed at
enhancing shareholders value by realizing significant synergies of both the companies. Similarly,
amalgamation of Asea Ltd. With Asea Browns Bovery (ABB) was intended to avail of the benefits of
rationalization and synergy effects.
3. To Achieve Accelerated Growth:
Both horizontal and vertical mergers take place to achieve growth at higher rate than the one
accomplished through its normal process of internal expansion. Significantly, larger number of recent
cross border acquisitions by Indian Companies was intended to accelerate the growth rate of the acquirer.
4. To Take Advantage of Complementary Resources:
It is in the vital interest of the two firms if they have complementary resources, the two firms are worth
more together than a part because each acquires something it does not have and gets it cheaper than it
would by acting on its own. Tata Steels acquisition of Corus and Hindalcos acquisition of Nevelis were
intended primarily to take advantage of complementary skills.
5. To Strengthen Controlling Power:

32

Acquisition of profit making companies by Indian businessmen like Kumar Manglam Birla, Ratan Tata,
Mukesh Ambani, R.P. Goenka, G.P. Goenka, Piramals, Modis, Ruias, Khaitan, etc. took place to get hold
of the controlling interest through open offer of market prices.
6. To Avail Tax Benefits:
At times, firms were merged to take tax advantage. One of the major considerations of acquiring Corus by
Tata Steel was optimizing on tax. Corus had a lot of unabsorbed tax losses. So Tata Steel wanted to find
out how best to utilise that. In the Netherlands, it is a Tax paying from so Tata Steels wanted to restructure
the acquisition in a manner where it can drive fiscal unity and save tax.

7. To Access New Technology:

Quite a large number of overseas acquisitions negotiated by Indian Companies were driven by
technological consideration. For instance, Tata Steel acquired Corus and Hindalco acquired Novelis to
acquire latest upstream technology.

Likewise, Essar Steels acquisition of Algoma was motivated by technological factor, in addition to
penetrate global market. Access to latest technology is expected to help the acquirer in obtaining a new
product mix.
8. To Penetrate World Markets:
Another significant consideration driving the Indian organizations to acquire offshore companies was to
gain new markets. According to the BCG research study, 88% of the emerging market global players are
driven by the need to penetrate new global markets and become global players. Overseas markets are
expected to bring higher margins, revenue and volume

33

Benefits of Mergers and Acquisitions

Benefits of Mergers and Acquisitions are manifold.Mergers and Acquisitions can generate
cost efficiency througheconomies of scale, can enhance the revenue through gain in market
share and can even generate taxgains.
The principal benefits from mergers and acquisitionscan be listed as increased value
generation,

increase

in

cost

efficiency

and

increase

in market

share.

Benefits of Mergers and Acquisitions are the main reasons for which the companies enter into
these deals. Mergers and Acquisitions may generate tax gains, can increase revenue and can
reduce the cost of capital. The main benefits of Mergers and Acquisitions are the following:
Greater Value Generation
Mergers and acquisitions often lead to an increased value generation for the company. It is
expected that the shareholder value of a firm after mergers or acquisitions would be greater
than the sum of the shareholder values of the parent companies. Mergers and
acquisitions generally succeed in generating cost efficiency through the implementation
of economies of scale.
Merger & Acquisition
also leads to tax gains and can even lead to a revenue enhancement through market share
gain. Companies go for Mergers and Acquisition from the idea that, the joint company will be
able to generate more value than the separate firms. When a company buys out another, it
expects that the newly generated shareholder value will be higher than the value of the sum of
the shares of the two separate companies.

Mergers and Acquisitions

can prove to be really beneficial to the companies when they are weathering through the tough
times. If the company which is suffering from various problems in the market and is not able to
overcome the difficulties, it can go for an acquisition deal. If a company, which has a strong
market presence, buys out the weak firm, then a more competitive and cost efficient company
can be generated. Here, the target company benefits as it gets out of the difficult situation and
34

after being acquired by the large firm, the joint company accumulates larger market share. This
is because of these benefits that the small and less powerful firms agree to be acquired by the
large firms.
Gaining Cost Efficiency
When two companies come together by merger or acquisition, the joint company benefits in
terms of cost efficiency. A merger or acquisition is able to create economies of scale which in
turn generates cost efficiency. As the two firms form a new and bigger company, the production
is done on a much larger scale and when the output production increases, there are strong
chances that the cost of production per unit of output gets reduced.
An increase in cost efficiency is affected through the procedure of mergers and acquisitions.
This is because mergers and acquisitions lead to economies of scale. This in turn promotes cost
efficiency. As the parent firms amalgamate to form a bigger new firm the scale of operations of
the new firm increases. As output production rises there are chances that the cost per unit of
production will come down
Mergers and Acquisitions are also beneficial

When a firm wants to enter a new market

When a firm wants to introduce new products through research and development

When a forms wants achieve administrative benefits

To increased market share

To lower cost of operation and/or production

To gain higher competitiveness

For industry know how and positioning

For Financial leveraging

To improve profitability and EPS

35

An increase in market share is one of the plausible benefits of mergers and acquisitions. In
case a financially strong company acquires a relatively distressed one, the resultant
organization can experience a substantial increase in market share. The new firm is usually
more cost-efficient and competitive as compared to its financially weak parent organization.
It can be noted that mergers and acquisitions prove to be useful in the following
situations:
Firstly, when a business firm wishes to make its presence felt in a new market. Secondly, when
a business organization wants to avail some administrative benefits ,thirdly when a business
firm is in the process of introduction of new products, new products are developed by the R&D
wing of a company.
Employee Benefits under Mergers and Acquisitions in US
The Employee Retirement Income Security Act was enacted in 1974. It is also known as
ERISA. Since then programs for employee benefit have been a major component of the balance
and income statements of US business organizations. Current law promulgations have attached
supreme importance to the presence of post retirement pension schemes and welfare benefit
schemes as a part of corporate obligation. As a result employee benefit programs are affecting
the viability of mergers and acquisitions in the USA.
Expenses accruing due to employee benefit programs may not be fully reflected in a companys
balance sheet. Some employee benefit obligations may arise out of a change in the corporate
structure of a firm. Retirement income schemes and benefit plans may vary from company to
company. Companies going for mergers and acquisitionsstrive to iron out the internal
differences to maintain a specified level of employee satisfaction.

36

Impact Of Mergers And Acquisitions

Abstract:
Just as mergers and acquisitions may be fruitful in some cases, the impact of mergers
and acquisitions on various sects of the company may differ. In the article below,
details of how the shareholders, employees and the management people are affected
has been briefed.
Mergers and acquisitions are aimed at improving profits and productivity of a company.
Simultaneously, the objective is also to reduce expenses of the firm. However, mergers
and acquisitions are not always successful. At times, the main goal for which the
process has taken place loses focus. The success of mergers, acquisitions or takeovers
is determined by a number of factors. Those mergers and acquisitions, which are
resisted not only affects the entire work force in that organization but also harm the
credibility of the company. In the process, in addition to deviating from the actual aim,
psychological impacts are also many. Studies have suggested that mergers and
acquisitions affect the senior executives, labor force and the shareholders.
Employees:

Impact Of Mergers And Acquisitions on workers or employees:

Aftermath of mergers and acquisitions impact the employees or the workers the most. It
is a well known fact that whenever there is a merger or an acquisition, there are bound
to be lay offs.In the event when a new resulting company is efficient business wise, it
would require less number of people to perform the same task. Under such
circumstances, the company would attempt to downsize the labor force. If the
employees who have been laid off possess sufficient skills, they may in fact benefit from
the lay off and move on for greener pastures. But it is usually seen that the employees
those who are laid off would not have played a significant role under the new
organizational set up. This accounts for their removal from the new organization set up.
These workers in turn would look for re employment and may have to be satisfied with a
much lesser pay package than the previous one. Even though this may not lead to
37

drastic unemployment levels, nevertheless, the workers will have to compromise for the
same. If not drastically, the mild undulations created in the local economy cannot be
ignored fully.
Management at the top:

Impact of mergers and acquisitions on top level management:

Impact of mergers and acquisitions on top level management may actually involve a
clash of the egos. There might be variations in the cultures of the two organizations.
Under the new set up the manager may be asked to implement such policies or
strategies, which may not be quite approved by him. When such a situation arises, the
main focus of the organization gets diverted and executives become busy either settling
matters among themselves or moving on. If however, the manager is well equipped with
a degree or has sufficient qualification, the migration to another company may not be
troublesome at all.
Shareholders:

Impact of mergers and acquisitions on shareholders:

We can further categorize the shareholders into two parts:
The Shareholders of the acquiring firm
The shareholders of the target firm.
Shareholders of the acquired firm:
The shareholders of the acquired company benefit the most. The reason being, it is
seen in majority of the cases that the acquiring company usually pays a little excess
than it what should. Unless a man lives in a house he has recently bought, he will not be
able to know its drawbacks. So that the shareholders forgo their shares, the company
has to offer an amount more then the actual price, which is prevailing in the market.
Buying a company at a higher price can actually prove to be beneficial for the
local economy.
38

Shareholders of the acquiring firm:

They are most affected. If we measure the benefits enjoyed by the shareholders of the
acquired company in degrees, the degree to which they were benefited, by the same
degree, these shareholders are harmed. This can be attributed to debt load, which
accompanies an acquisition.

39

Costs of Mergers and Acquisitions

Abstract: Costs

of

Mergers

and

Acquisitions

are calculated in order to check to the viability and profitability of any Merger or
Acquisition deal.

The different methods adopted for this cost calculation are the Replacement Cost
Method, Discounted Cash Flow Method and Comparative Ratio calculation
method.
Costs of Mergers and Acquisitions
are very much important as it determines the viability of any Merger or
Acquisition. Any company finalizes a merger deal only after calculating the cost
of merger. In case of acquisition, when a company buys out another firm, it
calculates the costs in order to determine how beneficial will be the takeover.
In order to calculate the
cost of Mergers and Acquisitions
, proper valuation of the target company, It is very natural that the target
company tries to project its value to a high level but the firm who wants to take
over the target company wants the deal to settled at a low price. So, the ultimate
cost of the Acquisition depends on the price of the target company.

In the overall cost calculation of Acquisition, the Replacement Costs are

something very crucial. In many cases, the Replacement Costs determine
whether the Acquisition will ultimately take place or not.

40

Replacement Costs actually refers to the cost of replacing the target firm.
Generally, Target companys value is calculated by adding the value of all the
equipments, machinery and the costs of salary payments to the employees. So,
the company which wishes to acquire the target firm, offers price accounting to
this value. But, if the target firm does not agree on the price offered, then the
other firm can create a competitor firm with same costing. So, this idea of cost
calculation is referred as the calculation of Replacement Cost. But, it should be
mentioned here that, in case of the firms, where the main assets are not
equipments and machinery, but people and their skills, this type of cost
calculation is not possible.
Other than this Replacement Cost calculation method, the other methods that are
followed in calculating Costs of Mergers and Acquisitions, are the methods of
Discounted Cash Flow Method and Comparative Ratio calculation Method. In
Discounted Cash Flow Method, weighted average costs of capital are calculated,
while in Comparative Ratio calculation method, Price- Earnings Ratio and
Enterprise Value to Sales Ratio are calculated.

41

Mergers and Acquisitions Law

Every country follows their own set of rules and regulations regarding Mergers
and Acquisitions. In some countries like USA and Nigeria there several strict
laws regarding Mergers and Acquisitions,

While, in country like Thailand there are no specific laws and regulations to
govern Mergers and Acquisitions.
Mergers and Acquisitions Law exist in every country of the world. But, the laws
and regulations regarding Mergers and Acquisitions differ from country to country.
In US the Mergers and Acquisitions Law are different from that of Nigeria or
Thailand. So, to get a real picture of the Mergers and Acquisitions Law, we
have to discuss the Mergers and Acquisitions Law of different countries.
Mergers

and

Acquisitions

Law

in

United

States

of

America

In Unites States of America,(USA), Mergers and Acquisitions Law have been

generated keeping in mind the interests of the shareholders. To protect the
shareholders, US govt. constituted the law that, a merger deal can be finalized
only through the process of voting by the Board of directors and voting by the
shareholders of the two separate companies.
In USA, there are both state laws and federal laws to administer Mergers and
Acquisitions.
State Laws of USA regarding Mergers and Acquisitions
The State Laws determine the process through which any merger or acquisition
can be approved in the country. These laws also ensure that, the shareholders of
the target firm receive fair value for their shares. In USA, State laws has also
42

been generated keeping in mind the issue of Hostile Takeover. These laws
protect any target company from Hostile Takeover by providing financial and
legal support.
Federal Laws of USA regarding Mergers and Acquisitions
The Federal Laws keeps a check on the size of the joint firm after a Merger or
Acquisition, so that the merged firm cannot develop monopolistic power. The
Federal Laws of USA ensures that, no big merged firm involves in any business
activity which is unlawful.
Just like USA, all the other countries have their own laws and regulations
regrading Mergers and Acquisitions. In Nigeria, for approval of any Merger or
Acquisition deal, a majority agreement is required to be produced before court.
The court sanctions the deal by issuing order. On the contrary, in Thailand, there
are no fixed laws and regulations regarding Mergers and Acquisitions. The
companies are free to set their own terms and conditions in case of any merger
or acquisition.

43

Valuation Related To Mergers And Acquisitions

Valuation related to mergers and acquisitions employ several procedures,
namely, the income based procedure, the asset based procedure and the market
based procedure.

There are many factors that determine whether a particular company ought to be
bought or not, such as the financial soundness of the subject company. Along
with that, the financial trends over the past couple of years and the trends
manifested in the macroeconomic indicators also need to be judged.
Valuation related to mergers and acquisitions usually follow these three methods:
market based method, asset based method and income based method. It may be
felt that the market based method is the most relevant, but all three methods are
significant depending upon the situation prevailing during the course of the
mergers as well as acquisitions.
Market based method:
Valuation related to mergers and acquisitions estimated by the market based
method, compares various aspects of the target company with the same aspects
of the other companies in the market. These companies (not the target company)
usually possess a market value, which has been established previously.

There are a few things to be kept in mind prior to comparing the various aspects,
such as which factors need to be compared and which are the companies that
will serve as comparable companies to the target one. Public companies,
belonging to similar industries (of the target company) may be opted for as
comparable, but if the target company is not listed on the stock exchange or if it
44

is comparatively smaller in size than the public companies, comparison with the
public companies may not be of much help. In such cases, private as well as
public databases are available, which are commercial in nature.
Other aspects that need to be compared include book value and earnings, or
total revenue. Once all the data is collected, an extensive comparison is made to
find the value of the target/subject company.
Asset based method:
Valuation related to mergers and acquisitions employ this method when the
subject or the target company is a loss making company. Under such
circumstances, the assets of the loss making company are calculated. Along with
this method, the market based method and the income based method may also
be employed. Valuations obtained from this method may generate very small
value, however it is more likely to generate the actual picture of the assets of the
target company.
Income based method:
Valuation related to mergers and acquisitions employing the income based
method take the net present value into consideration. The net present value of
income, which is likely to be in the future, is taken into account by the application
of a mathematical formula

45

Merger and Acquisition Trends

Merger and Acquisition Trends give a clear idea about the movements of the
market. Not only the product market or labor market, but also the money market
gets influenced by these Merger and Acquisition Trends.

Merger and Acquisition Trends are important to study in order to judge the
market movements of any particular economy.
Not only the markets of particular countries, but also the World Market gets
influenced by the significant Mergers and Acquisitions.
So, one can easily understand how determining the Merger and Acquisition
Trends are in the overall development growth of any economy.1
In the years 2006 and 2007, the world experienced numerous mergers and
acquisitions.
All over the world, in the developed and developing nations, record number of
merger and acquisition deals took place.
Most of these merger and acquisitions actually led to decrease in number of
public undertakings and increase in number of private enterprises. This
happened as many public organizations all over the world, were either merged
into or acquired by big private institutions.
The reason of this particular Merger and Acquisition Trend, was the emergence
and rapid growth of Private Equity Funds. Moreover, the regulatory environment
of the publicly owned companies and the urge to attain growth of short term
earnings were also behind the specific trend of Mergers and Acquisitions.
46

Mergers and Acquisitions resulting into privatization of the public undertakings

took place not only in Europe, but also in North America, China and even in
country like Brazil. In Europe this type of Mergers and Acquisitions took place
significantly, as the market for public-to-private investment was quite strong in
Europe. In China this type of Mergers and Acquisitions were first approved in
2006.
According to experts this trend of going private through mergers and acquisitions
will continue in the future. As the Private Equity Funds are facing the target of
deploying the raised capital, acquisition og large public organizations are
definitely in the pipeline.

47

The Deal Of Merger Or Acquisition

In the article below, details of the deal of merger or acquisition has been scripted.
Prior to the deal of merger or acquisition is actually struck, there are many
factors, which determine the success of the entire process.

The reciprocation of the target company, the approach of the acquiring company
plays a vital role in the entire process. The commencement of the process of
mergers and acquisition is marked with a tender offer. A tender offer is an offer
wherein the purchase of all or some of the shares belonging to the shareholders
is intended. The price fixed for the same is of a premium rate as compared to the
market price. The laws formulated by the SEC or Securities And Exchange
Commission necessitates that if a company or an individual acquires 5% stock in
a company, the same should be conveyed to the SEC. A tender offer may either
be a friendly one or an unfriendly one. A company, which intends to acquire a
company eventually buys out all the shares of the target company. However the
limit is restricted to only 5% and the outstanding shares are reported as SEC.
Declaration about the number of shares (the ones,which have been bought and
the outstanding ones) are made before the SEC.

The total price the acquiring company is ready to pay for the target company and
its assets is worked out with assistance from investment bankers as well as the
financial advisors. Thereafter the tender offer is published informing the
shareholders about the offer price as well as deadlines for either rejecting the
offer or accepting it.
Reaction of the target company:

48

The target company responds to the above course of action in any one of the
following ways:
(I) Agree with the Offer terms: In the event it is felt by the top level executives
and managers that the offer price may be accepted, the deal of merger or
acquisition is struck.
(II) Try to negotiate: If the terms offered by the acquiring company is not
acceptable, then the shareholders of the target company will try to negotiate the
deal of merger or acquisition. The shareholders and the top level management of
the subject company will try to work out issues so that they do not lose their jobs
and simultaneously see the interest of the target company.
(III) Looking for a White Knight: A White Knight is referred to another company,
which would like to go for a friendly take over of the subject company, thereby
saving the target or the subject company from falling prey to that company, which
is intending for a hostile takeover of the target company.
(IV) Using a Poison Pill: The target company uses a Poison pill wherein it
attempts to make its assets or shares less appealing to the company, which is
attempting the tale over. The target company may do it by two methods:
(a) By using a flip in: Permits the prevailing shareholders of the target company
to buy shares at a discounted rate.
(b) By using a flip over: Permits the shareholders to buy stakes of the acquiring
company at a discounted rate after the merger has taken place.
Closure of the deal of merger or acquisition:
When the tender offer has been finally agreed upon by the target company and
after fulfilling certain regulatory criteria, the deal of merger or acquisition is
49

executed wherein some kind of transaction takes place. During the course of the
transaction, the company, which buys the target company makes payment with
stock, cash or with both.

50

Recent company Mergers

VSNL and Teleglobe Merger
The VSNL and Teleglobe merger took place in 2006 in a deal worth 239 million US
dollars. The acquisition of Teleglobe made VSNL the leader in voice services in the
world. Several benefits related to infrastructure, operations and services resulted from
this merger. VSNL gained higher scalability and better network connectivity.
The VSNL and Teleglobe merger in 2006 was one of the biggest deals in the
international communications industry. VSNL (Videsh Sanchar Nigam Limited) acquired
Teleglobe International Holdings Ltd. in a deal worth 239 million US dollars. VSNLs
annual revenue was expected to shoot up by 200% as a result of this acquisition.
The new company formed out of the VSNL and Teleglobe merger had broad based
ownership of data, voice and mobile networks spanning 240 countries. The important
aspects of the emerging company by the merger of VSNL and Teleglobe are
Global
Over

representation
650

enterprise

in

customers

and

35+

1400

enterprise

countries.
customers

globally

A total of about 206,356 km of cable inclusive of both land and under-sea cable
Ownership

of

more

than

100

cable

system.

Role of network administrator in SEA-ME-WE4 (South East Asia-Middle East Western

Europe)
30

earth

stations

ensuring

access

to

geo-stationary

satellites

The emerging company connected the Indian telecom network with 240 international
territories.
It also provided connection to 400 cellular service operators across the globe.
Provided

Global

data

service

to

India

Engaged in delivering content data

The acquisition of Teleglobe made VSNL the largest voice service provider globally. This
added further impetus to VSNLs emergence as a global telecommunications company
51

with operations in India, Sri-Lanka, Singapore, South Africa, United Kingdom, Canada
and the United States of America. The biggest benefits to Videsh Sanchar Nigam
Limited from this merger were in terms of higher scalability and better network services
to its customers. Teleglobes strong global network provided VSNL the platform for
further expansion of its services.

Bank Mergers
Bank Mergers are taking place all over the world. The Banks are opting for Mergers at
a rapid rate as the mergers are able to diversify risk, to reduce cost and to increase
efficiency.

Bank Mergers are happening in the world economy in a rapid rate for the past few
years. Obviously there are reasons behind this numerous bank mergers.
In the Banking Sector of any economy, the most crucial concern is the Risk
Management. Banks of every country are supposed to make a proper risk analysis in
order to balance the deposit and credit portfolios. Mergers can diversify these risks to a
significant extent.
Drastic increase in market competition, innovation of new financial products and
consolidation of regional financial systems and national financial systems are the other
reasons, for which banks are going for mergers, around the world.
Merger can be proved really useful in fighting market competition, as merger has the
capability to generate economies of scale. These Economies of scale can help the
banks in lowering their servicing cost and in this way can provide a competitive edge to
them.
Moreover, when Mergers happen, Transfer of Skills takes place between the two
banking organizations and this transfer of skills lead to higher efficiency on the part of
the merged bank.
52

Banking Sectors of every economy of the world are becoming global sooner or later.
This globalization or economic liberalization has exerted a great impact on the Bank
Mergers.

Bank of America Merger

Bank of America Mergers are quite important in the evolution of the bank over the
years. Most important among all the mergers and acquisitions were the merger between
Nations Bank and Bank America and the acquisition of ABN North America and LaSalle
Bank by Bank of America.

Bank of America Mergers are significant events in the history of the Bank. In fact,
these mergers and acquisitions provided the base of the rapid growth of the bank and
contributed enormously in achieving the position,which the Bank of America holds in
todays world. Bank of America went through a number of merger and acquisition deals
to attain the present status. The important mergers and acquisitions are as follows:
Before 1998, todays Bank of America was known as Nations Bank. In the year 1998,
this Nations Bank made an acquisition deal with Bank America. This acquisition deal
was the largest bank acquisition of that period. After this acquisition of Bank America by
Nations Bank, the combined entity got the name, Bank of America. Although the deal
was technically an acquisition, it was provided the structure of a Merger.
In the year 2004, Bank of America acquired National Processing Company, which was
engaged

in

processing

of

VISA

and

MasterCard

Transactions.

In the same year of 2004, Bank of America made an acquisition deal with FleetBoston
Financial. This acquisition helped Bank of America to gain market share in the northeastern

part

of

USA.

In 2005, Bank of America declared that it was going to make an acquisition deal with
MBNA. After getting the approval of Federal Reserve Board, the acquisition finally took
place in January,2006. This acquisition helped Bank of America to get a strong foothold
in

the

credit

card

market

of

USA.
53

In the year 2006, Bank of America declared that it would buy out The United States trust
Company

and

the

deal

was

finally

executed

in

January,

2007.

In 2007, Bank of America made a historic acquisition deal by acquiring LaSalle Bank
Corporation,

LaSalle

Corporate

Finance

and

ABN

Amro

North

America.

Recently, in January 2008, Bank of America has made an announcement that they are
going to buy Countrywide Financial.

Citigroup Merger
Abstract: In 1998, the Multinational Bank Citicorp and the Insurance & Credit Service
Provider Travelers Group signed a merger deal and formed Citigroup.

This Citigroup Merger was expected to generate a market capitalization, which would be
enough to give the merged company the first position among the financial services
companies of the world. Merger between Citicorp and Travelers Group Citigroup
Merger refers to the merger between Citicorp and Travelers Group, which created one
of the worlds largest financial services company, the Citigroup. This $140 billion dollar
merger took place in the year 1998. The merger deal was done with the objective of
making this American joint financial corporation, the largest in the world, ahead of the
Deutsche Bank of Germany and UBS of Switzerland.Position of Citicorp The two
financial services company which formed Citigroup were very large institutions
themselves. Citicorp was the multinational bank which used to serve customers in more
than 100 countries of the world. Citicorp was established as City Bank of New York long
back in 1812.
In 1865, the Bank joined National Banking System of US and became National City
Bank of New York. In 1895, it established itself as the largest American Bank. In 1926, it

attained the position of largest commercial bank in the world. But, it got the name
Citicorp in the middle of 1970s. Position of Travelers Group Just like Citicorp,
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Travelers Group was also a big financial institution involved in providing Brokerage
Service, Insurance Service, Credit Service and other Consumer Finance Services.
Before merging with Citicorp, Travelers Group itself went through many mergers and
acquisitions. Among them acquisition of the asset management and retail brokerage
firm named Shearson Lehman and acquisition of the Investment Bank, Salomon
Brothers are quite significant. Expectations from the MergerWhen these two biggies,
Citicorp and Travelers Group merged in 1998, expectations rose to high levels. It was
estimated that the Citigroup would serve almost 100 million customers in more than 100
countries of the world. It was expected that market capitalization of the merged
company would give it the first rank among all the financial services company of the
world. The Citigroup Merger Process In the merger deal it was decided that the
shareholders of the two companies would possess 50% of the merged company. The
shareholders of Citicorp were asked to convert their each share to 2.5 shares of the
Citigroup. This share exchange procedure was given tax exemption. But, in case of
Preferred Stock of Citicorp it was decided that these would automatically turn into
preferred stock of the new company Citigroup. Shareholders of Travelers Group were
instructed to retain their shares as those would be converted into the shares of
Citigroup, the terms and conditions remaining the same.

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