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Objectives:
Background:
• Between 1890-1904
Methods:
• Internal
• External
Internal:
External:
• By acquisitions of existing business firms in the form of mergers,
acquisitions,takeovers,absorption, consolidation etc.
Meaning of Terms:
MERGER
Generally, the co. which survives is the buyer, retains its identity and seller
co. is extinguished.
CONSOLIDATION
Consolidation of two existing firms into a new company in which both the
existing co’s extinguish.
ACQUISITION
Refers to a situation where one acquires another and the latter ceases to
exist. It is an act of acquiring company effective control, by one co. over
assets or mgt. of another co without any combination of companies.
AMALGAMATION:
Amalgamations are governed by sections 390 to 394 and 396 of the co’s Act
requiring consent of the shareholders and creditors.
TAKEOVER:
Sale of shares is the simplest process of takeover. Under MRTP Act, takeover
means acquisition of not less than 25%of the voting power in a co.
HOLDING COMPANY :
Holds more than half of the nominal value of equity capital of another
company, called subsidiary co.
RESTRUCURING:
Buyers motive:
to diversify the product line when existing products have reached their
peak in the life cycle
to reduce competition
for tax reasons – prior tax losses which will offset current or future
earnings.
Sellers Motives
limit competition
Theories of Mergers
(1) Operating
(2) Financial
Improve liquidity
Improve EPS
Types of Merger
VERTICAL COMBINATION:
Process of joining of two or more companies involved in different stages of
the production or distribution of the same product or service.
Merger of coal mining and railway co. – existing product service added. Eg.
Oil industry
Objectives:
(2) Forward vertical integration:occurs when the firms acquire or create a co.
that purchases its products/services
HORIZONTAL COMBINATION
Involves two firms operating and competing in the same kind of business
activity. Eg. ACC Ltd,& the acquisition in 1987 of American Motors by
Chrysler represented a horizontal combination; Orissa Power supply co
merged with BSES Ltd.
Economies of scale
Elimination of duplication
CONGLOMERATE MERGER
Eg. Borjan Tea Estate was merged with TATA Tea Ltd.; Videocon Narmada
Electronics Ltd. Merged with Videocon International Ltd.
Objectives
Diversification of activities
Financial stabilities
Introduction stage
Exploitation stage
Maturity stage
Decline stage
Marketing synergy
Operating synergy
Investment synergy
Management synergy
Corporate Restructuring
Objectives:
Background:
Intense competition
Globalisation
Technological change
Foreign investment
Background
Meaning:
Corporate restructuring is an episodic exercise, not related to investments in
new plant and machinery which involve a significant change in one or more
of the following
Composition of liability
Characteristics
(j) Forfeiture of all or part of the ownership shares by pre structuring stock
holders
Objectives
• Growth
• Technology
• Government policy
• Economic stability
I Expansion
II Sell-offs
Methods of restructuring
Eg. DCM group and Daewoo motors entered in to JV to form DCM DAEWOO
Ltd. to manufacture automobiles in India.
Internal reasons:
Competitive goals:
Strategic goals:
1. synergies
2. transfer of technology / skills
3. diversification
When do JV form:
Benefits of JV
Sell-offs:
Normally, sell-offs are done because the subsidiary doesn’t fit into the
parent co’s core strategy.
Spin off
The parent co. distributes all the shares it owns in a controlled subsidiary
to its own shareholder on a pro-rata basis. It may be in the form of
subsidiary or a separate company.
Divestitures:
Steps:
It is nothing but takeover of a co. using the acquired firm’s assets and
cash flow to obtain financing.
In LBO, the assets of the co. being acquired are used as collateral for the
loans in addition to the assets of the acquiring co.
LBO’s are risky for the buyers if the purchase is highly leveraged.
Management Buyout:
• to save their jobs, either if the business has been scheduled for closure
or if an
• to maximise the finanacial benefits they receive from the success they
bring to
Benefits of MBO:
• Undervalued market
MLPs are a type of limited partnership in which the shares are publicly
traded. The limited partnership interests are divided into units which are
traded as shares of common stock. Shares of ownership are referred to as
units.
MLPs generally operate in the natural resource, financial services, and real
estate industries.
Types of partners
General partners
Limited partners
Types of MLP’s
Roll up MLP - formed by the combination two or more partnership into one
publicly traded partnership.
Start up MLP - formed by partnership that is initially privately held but later
offers its
an ESOP is a type of defined contribution benefit plan that buys and holds
stock. ESOP is a qualified, defined contribution, employee benefit plan
designed to invest primarily in the stock of the sponsoring employer.
It is a retirement plan in which the co. contributes its stock to the plan for the
benefit of the company’s employees. With an ESOP, you never buy or hold
the stock directly.