ankit & vishal m&a

8/1/2019 Ankit & Vishal M&A

1/26

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

1


2/26

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

2


3/26

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.

3


4/26

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

4


5/26

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


6/26

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

6


7/26

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.

7


8/26

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.

8


9/26

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

9


10/26

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

10


11/26

Case study 1: Ranbaxy DaichiRanbaxy Overview

11


12/26

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


13/26

The DEAL

13


14/26

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

14


15/26


16/26

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


17/26

JV- Goals, Benefits

Goals

Synergies

Transfer of technology/skills

Diversification

Benefits

Complementary Benefits

Acquiring and Sharing Expertise

New Business / Product Development

Capacity Expansion

17


18/26

JV- Issues

Issues in Joint Ventures

Due Diligence

Business Strategy Development of HR Strategies

Implementation

18


19/26

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

19


20/26

SWOT Analysis

STRENGTHSGoodwill of Suzuki Brand

Contemporary Technology

Market Share & reliability

WEAKNESS

Japan for technical support

OPPORTUNITIES

Infrastructure

Innovation

THREATS

Govts Policies, taxes etc

20


21/26

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

21


22/26

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


23/26

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.

23


24/26

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.

24


25/26

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.

25


26/26

THANK YOU

26

ankit & vishal m&a

Documents