Project Report
Project Report
Project Report
SUBMITTED BY
SUPERVISED BY
Name of the Supervisor: SUBHASISH DASGUPTA
Name of the College: THE BHAWANIPUIR EDUCATION
SOCIETY COLLEGE
1
Annexure-IA
SUPERVISOR'S CERTIFICATE
2
Annexure-IB
STUDENT'S DECLARATION
I hereby declare that the Project Work with the title “MERGER
& ACQUISITION” submitted by me for the partial fulfillment of
the degree of B.Com. Honours in Accounting & Finance under
the University of Calcutta is my original work and has not been
submitted earlier to any other University /Institution for the
fulfillment of the requirement for any course of study.
I also declare that no chapter of this manuscript in whole or in
part has been incorporated in this report from any earlier work
done by others or by me. However, extracts of any literature
which has been used for this report has been duly acknowledged
providing details of such literature in the references.
3
ACKNOWLEDGEMENT
Also a great thanks to my family and friends who tried their best
to give their support either by giving me a lot of encouragement
to keep up with this task or by supporting us financially and pay
all the cost required to complete this task.
4
CONTENTS
S. NO. TITLE PAGE NO.
1. COVER PAGE 1
2. SUPERVISOR’S CERTIFICATE 2
3. STUDENT’S DECLARATION 3
4. ACKNOWLEDGEMENT 4
5. CHAPTER 1: INTRODUCTION
TO MERGER & ACQUISITION
1.1: Background 07 – 07
1.2: Introduction
08 – 08
1.3: objectives
1.4: Benefits 09 – 12
1.5: Limitation 13 – 14
1.6: Procedure 15 – 15
1.7: Valuation 16 – 17
1.8: Participants 18 – 18
1.9: Factors responsible for success 19 – 19
1.10: Factors responsible for failure 20 – 21
1.11: Literature Review 22 – 22
1.12: Research Methodology
23 – 24
25 – 26
6. CHAPTER 2: CONCEPTUAL FRAMEWORK &
STUDY OF MAJOR MERGER & ACQUISITION
2.1: Overview 27 – 27
2.2: national scenatio
2.2.1: Tata motors & ford motors 28 – 30
2.2.2: Tech mahindra & mahindra satyam 31 – 33
2.2.3: Vodafone & Idea 34 – 35
2.3: International scenatio 36 – 37
5
CHAPTER: 1
6
1.1: Background
The concept of merger and acquisition in India was not popular until the
year 1988. During that period a very small percentage of businesses in
the country used to come together, mostly into a friendly acquisition with
a negotiated deal. The key factor contributing to fewer companies
involved in the merger is the regulatory and prohibitory provisions of
MRTP Act, 1969. According to this Act, a company or a firm has to follow
a pressurized and burdensome procedure to get approval for merger and
acquisitions.
5. Increase Market Share & Revenue: This reason assumes that the
company will be absorbing a major competitor and increasing its
power (by capturing increased market share) to set prices.
Companies buy companies to reach new markets and grow revenues
and earnings. A merge may expand two companies' marketing and
distribution, giving them new sales opportunities. A merger can also
improve a company's standing in the investment community: bigger
firms often have an easier time raising capital than smaller ones.
Example: Premier and Apollo Tyres.
11
12. Corporate friendliness: Although it is rare but it is true that
business houses exhibit degrees of cooperative spirit despite
competitiveness in providing rescues to each other from hostile
takeovers and cultivate situations of collaborations sharing goodwill
of each other to achieve performance heights through business
combinations. The combining corporate aims at circular
combinations by pursuing this objective.
15. Taxes: A profitable company can buy a loss maker to use the
target's loss as their advantage by reducing their tax liability. In the
United States and many other countries, rules are in place to limit
12
the ability of profitable companies to "shop" for loss making
companies, limiting the tax motive of an acquiring company.
14
I. Mergers offer company's promoters advantages of increase in
the size of their company, financial structure and financial
strength.
II. Mergers can convert closely held and private limited company
into public limited company without contributing much wealth
and losing control of promoters over the company.
Following are the benefits that consumers may derive from mergers
and acquisitions transactions:
• Corporate raiders use their control to strip assets from the target,
make a quick profit, destroying the company in the process,
throwing people out of work.
16
1.6: PROCEDURE OF MERGER
1. Search for merger partner: The first step in mergers is to search for
merger partner. The top management may use their own contact in
the same line of economic activity or in the other diversified field
which could be identified as a better merger partners. Such
identification should be based on the detail information of the
merger partners collected from public and private sources.
8. Transfer of assets and liabilities: The High Court has the power to
give order for transfer of any property from Transferor Company to
Transferee Company. By the virtue of such order assets and
liabilities of the Transferor Company shall automatically stand
transferred to Transferee Company.
Following are some methods that are employed by the merging firms:
20
the same industry group will give the acquiring company good
guidance for what the target's P/E multiple should be.
21
1.8: PARTICIPANTS TO MERGERS AND
ACQUISITIONS
23
1.9: FACTORS RESPONSIBLE FOR SUCCESSFUL
MERGERS AND ACQUISITIONS
3. Price: A low price does not always equate to a good deal, but
higher the price; it is fewer cushions for unexpected problems.
Buying company is often forced to pay more price than they want
to pay for the deal. In a competitive situation the buying company
needs to decide how much it is willing to pay and not exceed that
level, even if it means losing the company. However, in any merger
and acquisition there is a pricing range, based on different
assumptions of the future performance of the merger and
acquisition. The buying company has to decide the price to offer
for the deal, or how risk will be divided between shareholders of
merging company.
25
5. DUE DILIGENCE: Due diligence means, "A large part of what
makes a deal successful after completing it, is what is being done
before completing it". Before the closing of the deal, the buyer
should engage in a thorough due diligence review of the sellers
business. The purpose of the review is to detect any financial and
the business risk that the buyer might inherit from the seller. The
due diligence team can identify ways in which assets, process and
other resources can be combined in order to realize cost saving and
other expected synergies. The planning team can also try to
understand the necessary sequencing of events and resulting pace
at which the expected synergies may be realized.
26
1. Payment of high price: The merger fails when the maximum price
is paid to buy another company. In such situation shareholders of
Transferee Company will receive more cash but the shareholders of
Transferor Company will pay more cash. As a result of this deal for
merger will fail.
27
1.11: LITRETURE REVIEW
The following were the major efforts at research in the subject, which
have been referred for the research purpose.
(A) P Akhil Bhan has made an attempt to study the insight into the
motives and benefits of the mergers in Indian banking sector .This
is done by examining the eight merger deals of the banks in India
during the period of reforms from 1999 to 2006 . Through the
empirical methods by applying t-test and EVA value calculations
the potential of the mergers has been evaluate to study the
efficiencies or benefits achieved due to the merger .Through this
paper and the sample taken for analysis it has been concluded that
28
the mergers in the banking sector in the post reform period
possessed considerable gains which was justified by the EVA of
the banks in the post merger period.
(B) Dr. V. K. Shobhana and Dr. N. Deepa (2011) made a probe into
the fulfillment of motives as vowed in the merger deals of the
nine select merged banks. The study uses Summary Statistics,
Wilcoxon Matched Paired Signed Rank Test and‘t’ test for
analysis and interpretation of data pertaining to the five pre and
post merger periods each. The result indicates that there has been
only partial fulfillment of the motives as envisaged in the merger
deals.
(C) Egl Duksait and Rima Tamosiunien (2009) described the most
common motives for companies decision to participate in
mergers and acquisitions transactions. The reason is growth,
synergy, access to intangible assets, diversification, horizontal
and vertical integration and so on arises from the primary
company’s motive to grow. Most of the motivations for mergers
and acquisitions feature serve as means of reshaping competitive
advantage within their respective industries.
CONCLUSION:
30
1.12: RESEARCH METHODOLOGY
The research methodology is a systematic way of studying the research
problem. The research methodology means the way in which we can
complete our prospected task. Before undertaking any task it becomes very
essential for anyone to determine the problem of study. I have adopted the
following procedure in completing my report study.
1. Research Problem.
2. Research Design.
3. Determining the data sources.
4. Tools used for analysis of data
5. Analyzing the Data.
6. Interpretation of the data.
7. Preparing research report.
31
1) Research Problem: I am interested in corporate sectors and I want to
make future in it. So, l have decided to make my research study on the
MERGER & ACQUISITION.
Merger & acquisition is one of the important factors as far as corporate
sector is concerned. As my training is at a corporate, I have got the
project upon “MERGER & ACQUISITION” the great challenge
before the banks. This is my problem to be studied.
2) Research Design: The project is divided into two parts. The first part
of the project deals with Mergers and Acquisitions as a concept on a
whole. I have researched about the basic knowhow of Mergers and
Acquisitions, the history of the industry and the present state by using
secondary data. The first part of the project is descriptive study giving
an overview of the Mergers and Acquisitions. The first part of the
project is collected through secondary data obtained from the internet,
newspaper, magazines whereas the second part of the project relating
to the Trends in Mergers and Acquisitions and the analysis of the M&A
Market in India and the senior executives perception of Mergers and
Acquisitions is covered using primary data.
3) Determining the data sources: Both primary and secondary data are
required in this study. Primary data is the first hand information
collected directly from respondents. The tool used here is
questionnaire. Primary Data is collected through surveys conducted
among existing executives and employees working in today’s Global
Work Environment, including some top level executives from some of
the big MNC's functioning in Gurgaon.
4) Tools used for analysis of data: The survey process involved two
phases: First phase included identification and selection of the target
audience to be studied and to determine the parameters on which
respondents will justify their preferences. A questionnaire was
designed to collect the needed information from the respondents. The
Second Phase involves collection of the primary data by making the
respondents fill up questionnaires.
32
5) Analyzing the Data: The Primary or secondary data both would never
be useful until they are edited and studied or analyzed. When the
person receives the data many unuseful data would also be there. So,
I analyzed the data and edited it and turned it in the useful manner. So,
that it can become useful in my report study.
CHAPTER: 2
33
CONCEPTUAL FRAMEWORK &
STUDY OF MAJOR M&A's
2) About FORD
Ford Motor Company is a multinational automobile
manufacturer with its roots in America. It manufactures and sells
automobiles, trucks, buses and tractors across the world. ...
Currently, Lincoln and Troller (Brazilian SUV manufacturer) are the
active Ford marques. Ford has its headquarters in Dearborn,
Michigan, in U.S.A.
Mr. Ratan N. Tata, Chairman of Tata Sons and Tata Motors, was
present at the handing over ceremony at the head quarters of Jaguar
Land Rover at Gaydon in the UK along with Mr. Don Leclair, the
Executive Vice President and Chief Financial Officer of Ford Motor
Company, and Mr. Lewis Booth, Executive Vice President of Ford
Motor Company, who has responsibility for Ford of Europe, Volvo
and Jaguar Land Rover.
Tata Motors confirmed that Mr. David Smith, the acting Chief
Executive Officer of Jaguar Land Rover, would be the new CEO of
the business. Mr. Smith has 25 years of experience with Jaguar Land
Rover and Ford. Before recently returning to Jaguar Land Rover as
its Chief Financial Officer, he was Director Finance and Business
Strategy for PAG and Ford of Europe.
Mr. Smith said, “We are very pleased with the association with Tata
Motors. We look forward to a sustained bright future for the
company and its stakeholders.”
Jaguar Land Rover has been acquired at a cost of US$ 2.3 billion on
a cash free, debt-free basis. The purchase consideration includes the
ownership by Jaguar and Land Rover or perpetual royalty-free
licenses of all necessary Intellectual Property Rights, manufacturing
plants, two advanced design centers in the UK, and worldwide
network of National Sales Companies.
Long term agreements have been entered into for supply of engines,
stampings and other components to Jaguar Land Rover. Other areas
of transition support from Ford include IT, accounting and access to
test facilities. The two companies will continue to cooperate in areas
such as design and development through sharing of platforms and
joint development of hybrid technologies and power train
engineering. The Ford Motor Credit Company will continue to
provide financing for Jaguar Land Rover dealers and customers for
a transition period. Tata Motors is in an advanced stage of
negotiations with leading auto finance providers to support the
Jaguar Land Rover business in the UK, Europe and the US, and is
expected to select financial services partners’ shortly.
36
2.2.2: MERGER OF TECH MAHINDRA &
MAHINDRA SATYAM
The decision was since pending for the receipt of approval from the
Andhra Pradesh High Court.
4. The Verdict:
38
Judge N.R.L. Nageswar Rao dismissed all petitions seeking to bar the
merger on the grounds that the scheme of amalgamation is in the interest
of the public and the shareholders and the interest of the workmen is also
protected. He ordered that the scheme of amalgamation—a detailed
merger plan—be filed with the Registrar of Companies within 30 days.
The high court, while sanctioning the merger, said pending investigations
and prosecution against Ramalinga Raju and others will continue. Tech
Mahindra should co-operate with investigating agencies such as the
Serious Fraud Investigation Office and Enforcement Directorate, it said.
The scheme of amalgamation of the two companies would be backdated
to April 2011 as per the terms of the merger
Also, the Court should not refuse to sanction the Scheme merely because
of a few objectors. In this case, the Court dismissed the objections of the
stakeholders as the role of the Court is just supervisory and the Court
cannot ignore the opinion of experts who have worked upon the Swap
Ratio and when the same has been accepted by majority
shareholders. Valuation is a technical method requiring expertise and
there can be genuine differences of opinion about the correct Swap Ratio.
Unless the person who challenges the valuation satisfies the Court that
the valuation is unfair, the Court will not disturb the scheme of
amalgamation.
The Court also ordered that all pending investigations against Ramalinga
Raju will continue till they are vacated or disposed of by relevant
39
competent authority and Tech Mahindra should cooperate with all the
respective agencies which Tech Mahindra agreed to readily.
Conclusion:
For Tech Mahindra, the operational merger with its affiliate will help
reduce its dependence on the telecom sector, which now contributes 97%
of its revenue, a share that will fall below 50% in the combined entity.
For Satyam, the union may help finally put behind it the scandal that its
founder B. Ramalinga Raju caused when, in January 2009, he confessed
to having misstated accounts to the tune of Rs7,136 crore over a period
of several years. His confession triggered a flight of employees and client
defections that resulted in the sale of the firm he founded in 1987 and
built into India’s fourth largest software services provider. This merger
results in the dilution of the Satyam brand name so whatever negative
connotation that brand name had will be dissolved.
40
2.2.3 : MERGER OF VODAFONE & IDEA
Introduction
On March 20, 2017, India’s third-largest telecommunications company,
Idea Cellular (Idea), announced US $ 23 billion, to merge with the world’s
second-largest company, Vodafone India Limited (Vodafone), to build
India’s most lucrative company estimated at US $ 12.5 billion.
The company will have a subscription base of 394 million and a customer
market share of 35% and 41% respectively. As the merger is expected to
take 24 months to complete, both companies have agreed to operate as
separate companies until then. Together, Kumar Mangalam Birla,
Chairman of Aditya Birla Group said, “Idea and Vodafone will build a
very important company when we look at our mutual power.” The merger
of fierce competitors in the Indian telecommunications industry came
after India’s largest company Reliance Industries Limited, owned by
Mukesh Ambani, launched Reliance Jio Infocomm Limited (Jio) in
September 2016. Jio came up with prices, offering free voice and the
lowest prices in the world. It has disrupted the telecommunications
industry in the country where telecom operators receive 70% of their
revenue through voice telephony.
Valuation
Until the merger is completed, Vodafone and Idea will be operating
separately and after merger they may use both brand names for at least a
few years until a full customer migration. The transaction values
Vodafone at Rs.82,800 crore (EV) and Idea for Rs.72,200 crore (EV) and
debt of Rs.55,200 and Rs.52,700 crores respectively. Opinions are far
more limited than the current market price and are also reflected in the
declining price of Idea Cellular post announcement. Vodafone’s high
ratings are supported by high revenue, customer base and full spectrum
capture compared to Idea.
While Airtel is diverse with additional services and presence in South
Asia and Africa it has a market capitalization by Rs.1,36,570 / – crores
and debts of Rs.96,078 / – crores.
41
Vodafone’s concept is equally balanced and note that the Aditya Birla
team made a fixed amount of dollars of Rs.109 per share to receive a
share of 4.9% at the end of the merger (2018) from Vodafone Group. Also,
there is an option to get a stake of 9.5% for Rs.130 per share over a 4-
year period to bring about equality.
Challenges
However, the markets did not respond well to the merger. After the
announcement, Idea’s price range began to decline. The share price
dropped from Rs.97.70 on March 20, 2017 to Rs.81.80 on September 06,
2017. Analysts were of the opinion that this would be similar to a three-
legged race with Usain Bolt. In other words, the feeling of competing
with two leading brands (Airtel and Jio) for two different brands could be
a daunting task.
Market Movement
Since the announcement of the agreement on 20 March, 2017, the market
price of Idea Cellular has declined by approximately 10-15%. It seems
that the shareholders of the Idea Cellular community are not happy with
the balance.
Conclusion
The merger between Idea and Vodafone will make them a top player. For
the benefit of co-operative management, synergies of up to INR 670
billion can be acquired & INR 140 billion on operating costs for 4th year.
It will also bring credit for the sale of Towers Assets to a consolidated
business.
The concept of consolidation seems to save costs and financial
opportunities that aid financial performance. And whether the company
will be able to monetize the remaining spectrum must be seen.
Aditya Birla Group’s promoters are smart enough to integrate with
Vodafone in this price war and at the same time they have the rights to
measure the pole in stages. So far, there is no benefit for public
shareholders and they will hope to benefit from the long-term merger.
42
References:
https://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/
BSTR530.htm
https://mnacritique.mergersindia.com/idea-vodafone-telecom-merger/
43
2.3: INTERNATIONAL SCENATIO
45
CHAPTER: 3
46
DATA FINDING AND ANALYSIS
1) How strong will the overall Indian M&A market be during the
next 12 months?
Survey results indicate that there is more emphasis on Foreign Buyers since
inflow of FDI's is increasing at a rapid rate. Thus fuelling the economic
growth in the country.
48
5) Which of the following types of buyers have been most
responsible for high company valuations over the past 12
months?
6) What sector will see the most M&A activity, globally, in the
next 12 months?
Respondents agreed that most foreign buyers in the Indian M&A market
will come from China. Survey analysts note that Chinese investors in the
M&A market are generally more visible shoppers because they tend to
come to the market in groups. The second choice was the United States of
America (24 percent). After USA, respondents pointed to United Kingdom
(14 percent)
Those respondents who felt that the most foreign buyers in the Indian M&A
market will come from China are most concerned about doing effective due
diligence (36 percent), followed by labor issues (30 percent).
50
9) In the next 12 months, do you believe your company will be
involved in an acquisition?
51
11) Do you feel the management and position of a company's
employees is compromised upon after an acquisition take place.
The majority of the respondents (74 percent) believed that Post merger or
acquisition ,their place in the organization does get jeopardized. There
could be many chances of either of the two organizations employees not
settling in with the other. This could lead to inefficient functioning of the
organization till the time a synergy is created.
52
CHAPTER: 4
53
CONCLUSION
One size doesn't fit all. Many companies find that the best way to get ahead
is to expand ownership boundaries through mergers and acquisitions. At
least in theory, mergers provide economies of scale by expanding
operations and cutting costs. Investors can take comfort in the idea that a
merger will deliver enhanced market power.
Now a day, many companies are taking decision to go for merger and
acquisitions to expand their business. But, the procedure for merger is time
consuming it almost takes 6 to 7 months. Therefore, most of the mergers
and acquisitions are not completed.
Mergers and acquisition transactions are often affected by government rules
and regulations, most of the countries do not allowed foreign companies to
enter into local market alone. Such foreign companies can enter only when
they make merger with any local company.
The current trend shows that there is decline in the number of mergers and
acquisitions.
It is because of mergers and acquisitions transactions the needs of expertise
persons have increased. Expertise persons include valuation expert,
lawyers, accountants, etc.
Merger and acquisition will give positive result only when it is executed
properly.
RECOMMENDATION
• Rapidness counts.
• Avoidance of disruptions of ordinary business.
54
CHAPTER: 5
BIBLIOGRAPHY
55
BIBLIOGRAPHY
1. CMIE Reports
2. Economic Times
3. DNA money
4. Essentials of Business Environment - K. Ashwathapa
5. Business Environment - Kale Ahmed
WEBLIOGRAPHY
1. www.bseindia.com
2. www.yahoo.com (links and search data)
3. www.google.co.in (links and search data)
4. www.investopedia.com
5. http://en.wikipedia.org/wiki/Mergers_and_acquisitions"
6. www.chartadvisor.com (term of the day)
7. www.moneycontrol.com
8. www.lenovo.com
9. www.hindubusiness.com
56