Merger & Acquisition:

Merger and acquisition is often known to be a single terminology defined as a process of combining two or more companies together. The fact remains that the so-called single terminologies are different terms used under different situations. Though there is a thin line difference between the two but the impact of the kind of completely different in both the cases. 1 Merger is considered to be a process when two or more companies come together to e!pand their business operations. "n such a case the deal gets finali#ed on friendly terms and both the companies share equal profits in the newly created entity. $hen one company takes o%er the other and rules all its business operations& it is known as acquisitions. "n this process of restructuring& one company o%erpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two& the one that is financially stronger and bigger in all ways establishes it power. The combined operations then run under the name of the powerful entity who also takes o%er the e!isting stocks of the other company. ' Another difference is& in an acquisition usually two companies of different si#es come together to combat the challenges of downturn and in a merger two companies of same si#e combine to increase their strength and financial gains along with breaking the trade barriers. A deal in case of an acquisition is often done in an unfriendly manner& it is more or less a forceful or a helpless association where the powerful company either swallows the operation or a company in loss is forced to sell its entity. "n case of a merger there is a friendly association where both the partners hold the same percentage of ownership and equal profit share.

(g.- "n the span of few years there are many companies coming together for betterment across the globe. )ecent mergers and acquisitions '*11 are +ipton )osen & ,at# in -ew .ork& /ulli%an & 0romwell ++1 in -ew .ork& /laughter & May in +ondon& Mallesons /tephen 2aques in /ydney& and 3sler 4oskin & 4arcourt ++1 in Toronto. (%en in "ndia merger and acquisition has become a fashion today with a cut throat competition in the international market. There are domestic deals like 1enta homes acquiring Agro 5utch "ndustries& A00 taking o%er (ncore 0ement and Addicti%e& 5almia 0ement acquiring 3rissa 0ement& (delweiss 0apital acquiring Anagram 0apital. All these are recent merger and acquisition '*1* %alued at about 6/5 '.17 billion. Apart from these there are other successful mergers in India as follows:

Tata 0hemicals took o%er 8ritish salt based in 6, with a deal of 6/ 9 1: billion. This is one of the most successful recent mergers and acquisitions '*1* that made Tata e%en more powerful with a strong access to 8ritish /alt;s facilities that are known to produce about <**&*** tons of pure white salt annually. Merger of )eliance 1ower and )eliance -atural )esources with a deal of 6/ 911 billion is another biggest deal in the "ndian industry. This merger between the two made it con%enient and easy for the )eliance power to handle all its power pro=ects as it now en=oys easy a%ailability of natural gas.

Airtel acquired >ain in Africa with an amount of 6/ 9 1*.? billion to set new benchmarks in the telecom industry. >ain is known to be the third largest player in Africa and being acquired by Airtel it is deliberately increasing its base in the international market. "0"0" 8ank;s acquisition of 8ank of )a=asthan at aout )s :*** 0rore is a greta mo%e by "0"0" to enhance its market share across the "ndian boundaries especially in northern and western regions. @ortis 4ealthcare acquired 4ong ,ong;s Auality 4ealthcare Asia +td for around )s <<' 0rore and is now on mo%e to acquire the largest dental ser%ice pro%ider in Australia& the 5ental 0orp at about )s BC* 0rore.

Joint Venture:
2oint %enture& commonly known as 2D& is a contractual arrangement between two or more parties who agree to come together to undertake a business pro=ect. All the parties contribute capital and share profits and losses in a decided ratio. 2oint %entures are a type of partnership that is always e!ecuted through a written contract known as a =oint %enture agreement E2DA .

Mergers or Amalgamations A merger is a combination of two or more businesses into one business. +aws in "ndia use the term ;amalgamation; for merger. The "ncome Ta! Act&1F71 G/ection 'E1A H defines amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company& in such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in %alue of the shares in the amalgamating company or companies become shareholders of the amalgamated company. Thus& mergers or amalgamations may take two forms:

Merger through Absorption:- An absorption is a combination of two or more companies into an ;e!isting company;. All companies e!cept one lose their identity in such a merger. @or e!ample& absorption of Tata @ertilisers +td ET@+ by Tata 0hemicals +td. ET0+ . T0+& an acquiring company Ea buyer & sur%i%ed after merger while T@+& an acquired company Ea seller & ceased to e!ist. T@+ transferred its assets& liabilities and shares to T0+. Merger through Consolidation:- A consolidation is a combination of two or more companies into a ;new company;. "n this form of merger& all companies are legally dissol%ed and a new entity is created. 4ere& the acquired company transfers its assets& liabilities and shares to the acquiring company for cash or e!change of shares. @or e!ample& merger of 4industan 0omputers +td& 4industan "nstruments +td& "ndian /oftware 0ompany +td and "ndian )eprographics +td into an entirely new company called 40+ +td.

A fundamental characteristic of merger Eeither through absorption or consolidation is that the acquiring company Ee!isting or new takes o%er the ownership of other companies and combines their operations with its own operations. 8esides& there are three ma=or types of mergers:

Horizontal merger:- is a combination of two or more firms in the same area of business. @or e!ample& combining of two book publishers or two luggage manufacturing companies to gain dominant market share. Vertical merger:- is a combination of two or more firms in%ol%ed in different stages of production or distribution of the same product. @or e!ample& =oining of a TD manufacturingEassembling company and a TD marketing company or =oining of a spinning company and a wea%ing company. Dertical merger may take the form of forward or backward merger. $hen a company combines with the supplier of material& it is called backward merger and when it combines with the customer& it is known as forward merger. Conglomerate merger:- is a combination of firms engaged in unrelated lines of business acti%ity. @or e!ample& merging of different businesses like manufacturing of cement products& fertili#er products& electronic products& insurance in%estment and ad%ertising agencies. +&T and Doltas +td are e!amples of such mergers.

Acquisitions and a!eo"ers An acquisition may be defined as an act of acquiring effecti%e control by one company o%er assets or management of another company without any combination of companies. Thus& in an acquisition two or more companies may remain independent& separate legal entities& but there may be a change in control of the companies. $hen an acquisition is ;forced; or ;unwilling;& it is called a takeo%er. "n an unwilling acquisition& the management of ;target; company would oppose a mo%e of being taken o%er. 8ut& when managements of acquiring and target companies mutually and willingly agree for the takeo%er& it is called acquisition or friendly takeo%er. 6nder the Monopolies and )estricti%e 1ractices Act& takeo%er meant acquisition of not less than 'C percent of the %oting power in a company. $hile in the 0ompanies Act E/ection :?' & a company;s in%estment in the shares of another company in e!cess of 1* percent of the subscribed capital can result in takeo%ers. An acquisition or takeo%er does not necessarily entail full legal control. A company can also ha%e effecti%e control o%er another company by holding a minority ownership. Ad"antages of Mergers # Acquisitions The most common moti%es and ad%antages of mergers and acquisitions are:

Accelerating a company;s growth& particularly when its internal growth is constrained due to paucity of resources. "nternal growth requires that a company should de%elop its operating facilities- manufacturing& research& marketing& etc. 8ut& lack or inadequacy of resources and time needed for internal de%elopment may constrain a company;s pace of

growth. 4ence& a company can acquire production facilities as well as other resources from outside through mergers and acquisitions. /pecially& for entering in new productsImarkets& the company may lack technical skills and may require special marketing skills and a wide distribution network to access different segments of markets. The company can acquire e!isting company or companies with requisite infrastructure and skills and grow quickly. (nhancing profitability because a combination of two or more companies may result in more than a%erage profitability due to cost reduction and efficient utili#ation of resources. This may happen because of:-

$conomies of scale:- arise when increase in the %olume of production leads to a reduction in the cost of production per unit. This is because& with merger& fi!ed costs are distributed o%er a large %olume of production causing the unit cost of production to decline. (conomies of scale may also arise from other indi%isibilities such as production facilities& management functions and management resources and systems. This is because a gi%en function& facility or resource is utili#ed for a large scale of operations by the combined firm. %perating economies:- arise because& a combination of two or more firms may result in cost reduction due to operating economies. "n other words& a combined firm may a%oid or reduce o%er-lapping functions and consolidate its management functions such as manufacturing& marketing& )&5 and thus reduce operating costs. @or e!ample& a combined firm may eliminate duplicate channels of distribution& or crate a centrali#ed training center& or introduce an integrated planning and control system. &'nerg':- implies a situation where the combined firm is more %aluable than the sum of the indi%idual combining firms. "t refers to benefits other than those related to economies of scale. 3perating economies are one form of synergy benefits. 8ut apart from operating economies& synergy may also arise from enhanced managerial capabilities& creati%ity& inno%ati%eness& )&5 and market co%erage capacity due to the complementarity of resources and skills and a widened hori#on of opportunities.

5i%ersifying the risks of the company& particularly when it acquires those businesses whose income streams are not correlated. 5i%ersification implies growth through the combination of firms in unrelated businesses. "t results in reduction of total risks through substantial reduction of cyclicality of operations. The combination of management and other systems strengthen the capacity of the combined firm to withstand the se%erity of the unforeseen economic factors which could otherwise endanger the sur%i%al of the indi%idual companies. A merger may result in financial synergy and benefits for the firm in many ways:

8y eliminating financial constraints

8y enhancing debt capacity. This is because a merger of two companies can bring stability of cash flows which in turn reduces the risk of insol%ency and enhances the capacity of the new entity to ser%ice a larger amount of debt