Download - Ankit & Vishal M&A
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Prepared by:
Vishal H Patel Ankit B Patel
Enrl No.:107550592018 Enrl No.:107550592024
MBA-II (2010-2012) MBA-II (2010-2012)
Submitted to:SARDAR PATEL COLLEGE OF ADMINISTRATION & MANAGEMENT
(SPCAM-MBA)
AFFILIATED WITH GUJARAT TECHNOLOGIACAL UNIVERSITY,
AHMEDABAD
PRESENTATION
ON
Mergers & Acquisitions, Joint Ventures
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Roadmap
M&As:Meaning
Inbound & Outbound M&As
Modes of Acquisitions
Types of Mergers
M&As: Advantages & FailuresCase study 1: Ranbaxy & Daichii
Joint Ventures:
Meaning, Benefits & Issues
Case Study 2: Maruti & Suzuki
Case Study 3: Hero & Honda
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Mergers & AcquisitionsM&As are a type of inorganic growth paths
Merger:-
In the pure sense of the term, a merger happens when two firms agree to go
forward as a single new company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a "merger of equals".
Both companies' stocks are surrendered and new company stock is issued in its
place.
For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham,
both firms ceased to exist when they merged, and a new company,
GlaxoSmithKline, was created.
Acquisition:-
When one company takes over another and clearly establishes itself as the new
owner, the purchase is called an acquisition.
From a legal point of view, the target company ceases to exist, the buyer
"swallows" the business and the buyer's stock continues to be traded.
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Inbound & Outbound M&As
Inbound M&AInbound M&A are mergers or acquisitions where aforeign company merges with or acquires an IndiancompanyEg: Daichii acquiring Ranbaxy
Outbound M&A
Outbound M&A are mergers or acquisitions where an Indiancompany merges with or acquires an foreign companyEg: Tata steel acquiring Corus
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Mode of Acquisitions
Management Buyouts
A management buyout (MBO) is a form of acquisition where a
company's existing management acquire a large part or all of the
company
Eg: in Sep07 the UK arm of Virgin Megastores was to be sold off
as part of a management buyout, and from Nov07, was knownby a new name, Zaavi
Hostile Takeovers : A hostile takeover allows a suitor to take over a
target company's management unwilling to agree to a merger ortakeover.
Eg
OraclePeoplesoft
India Cement- Raasi Cement5
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Mode of Acquisitions
Leveraged Buyouts: A leveraged buyout occurs when an investor,
typically financial sponsor, acquires a controlling interest in a
company's equity and where a significant percentage of the purchase
price is financed through leverage (borrowing)
Eg: Tata Corus
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TYPES OF MERGERS
Based on Business Structures Horizontal:- Two companies that are in direct competition and
share the same product lines and markets.
Vertical:- A customer and company or a supplier and company.
Think of a cone supplier merging with an ice cream maker. Conglomerate:- Two companies that have no common business
areas.
Market-extension merger:-Two companies that sell the same
products in different markets. Product-extension merger:- Two companies selling different but
related products in the same market.
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TYPES OF MERGERS
Based of method of Financing
Purchase Mergers - This kind of merger occurs when
one company purchases another. The purchase is
made with cash or through the issue of some kind ofdebt instrument; the sale is taxable.
Consolidation Mergers - With this merger, a brand new
company is formed and both companies are bought andcombined under the new entity. The tax terms are the
same as those of a purchase merger.
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Advantages of M&A
Economy of scale Economy of scope
Increased revenue or market share
Cross selling
Synergy
Taxation
Geographical or other diversification
Resource transfer Vertical integration
Absorption of similar businesses under singlemanagement
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Why M & As fail..
Research has conclusively shown that most of the mergers fail to achieve
their stated goals.
Some of the reasons identified are:
Corporate Culture Clash
Lack of Communication
Loss of Key people and talent
HR issues
Lack of proper training
Clashes between management
Loss of customers due to apprehensions
Failure to adhere to plans
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Case study 1: Ranbaxy DaichiRanbaxy Overview
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The DEAL
Daiichi got to acquire a controlling stake .51.62% in Ranbaxy for $ 3.4-4.6billion
Singh family promoters of Ranbaxy sold entire stake 34.8% for Rs 10000 crs
($2.4 bio) at Rs 737/-
Daiichi had to make an open offer to acquire 20% more from other
shareholders. Japanese company was to acquire another 4.9% through
preferential of share warrants
Ranbaxy was to get $1bn via preferential allotment, funds were to be used to
retire debt 12
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The DEAL
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Reasons for Takeover
DaiichiA complementary business combination
An expanded global reach
Strong growth potential
Cost competitiveness by optimizing usage of R&D and manufacturing facilities
Ranbaxy
The R&D pipeline was not delivering enough products, the generic market
was not generating adequate returns.
Ranbaxy had three choices
It could spend lot of money in acquiring a big generic company to
grow inorganicallyMerge with a global player
Sell-out
The sell out option was most profitable
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Joint Ventures (JV)
JV is an entity formed between two or more parties to undertake
economic activity together.
The parties agree to create a new entity by both contributing
equity, and they then share in the revenues, expenses, and control
of the enterprise.
The venture can be for one specific project only, or a continuing
business relationship such as the Sony Ericsson joint venture.
This is in contrast to a strategic alliance, which involves no equity
stake by the participants, and is a much less rigid arrangement.
Project Based JV: These are Joint Ventures entered into by
companies in order to accomplish a specific project.
Functional JV: These are Joint Ventures wherein, companies agree
to share their functions and facilities such as production,
distribution, marketing, etc. to achieve mutual benefit16
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JV- Goals, Benefits
Goals
Synergies
Transfer of technology/skills
Diversification
Benefits
Complementary Benefits
Acquiring and Sharing Expertise
New Business / Product Development
Capacity Expansion
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JV- Issues
Issues in Joint Ventures
Due Diligence
Business Strategy Development of HR Strategies
Implementation
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HISTORY
Maruti Udyog Ltd was established in February 1981
Actual Production commenced in 1983 with Maruti 800
Project Maruti started by Indira Gandhi & Sanjay Gandhi
Indian experts started search for collaboratorsNegotiated with Toyota, Nissan, Honda & Suzuki
After rounds of negotiation Suzuki was selected
Joint venture of Govt of India & Japanese Company Suzuki
Motors Corp
Previously Govt of India owned 80% equity & Suzuki had 20%
Now Indian Financial Institute has 18.28%, Suzuki has 54.24%
& 25% equity is public offering
Case Study 2: Maruti Suzuki Joint Venture
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SWOT Analysis
STRENGTHSGoodwill of Suzuki Brand
Contemporary Technology
Market Share & reliability
WEAKNESS
Japan for technical support
OPPORTUNITIES
Infrastructure
Innovation
THREATS
Govts Policies, taxes etc
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BENEFITS OF JOINT VENTURE
For Maruti
Suzuki Motor Corporation, the parent company, is a globalleader in mini and compact cars for three decades
Suzukis technical superiorLightweight engine that is clean and fuel efficient
Nearly 75000 people are employed directly by Maruti Suzukiand its partners
For Suzuki
Large Indian MarketMonopolistic trade in the Indian automobile market
Availability of resources
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The Market before JV
Case Study 3: Hero Honda Joint Venture
The license rajthat existed prior to economic
liberalization (1940s-1980s) in India did not allow foreign
companies to enter the market.
In the mid-80s when the Indian government started
permitting foreign companies to enter the Indian market
through minority joint ventures.
The entry of these new foreign companies transformedthe very essence of competition from the supply side to
the demand side. 22
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The Deal Is Done.(June 1984)
Honda agreed to provide tech. know-how toHHM and setting up manufacturing facilities.
This included the future R & D efforts.
Honda agreed for a lump sum fee of $500,000& 4% royalty on SP.
Both Partners held 26% of the equity with
other 26% sold to the public and the rest heldto financial institutions.
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Success Story
HHM had grown consistently, earning the title of the worlds
largest motorcycle manufacturer
Worlds largest two-wheeler manufacturer with annual salesvolume of over 2 million motorcycles.
Owns worlds biggest selling motorcycle brand Hero Honda
Splendor.
Over 9 million motorcycles on Indian roads.
Deep market penetration with 5000 outlets.
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Reasons for success
The deep penetration network of hero largely benefited the sales.
Absence of major competitors in initial years.
Sound and proven technical capabilities of Honda and the reliability of Hero.
Increased market for motorcycles
Better Fuel efficiency.
Change in peoples perception.
Decrease in price difference with scooters.
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THANK YOU
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