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    ST. XAVIERS COLLEGE, KOLKATA

    Room No.06 SESSION 2008 !!

    ST."AVIERS CO##EGE (KO#KATA)

    PREFACE

    M erger - It's the most talked about term today creating lot of excitementand speculative activity in the markets. But before Mergers & Ac uisitions !M&A"

    activity speeds up# it has to actually pass through a long chain of procedures !both

    legal and financial"# $hich at times delays the deal.

    %ith the liberali ation of the Indian economy in (( # restrictions on Mergers

    and Ac uisitions have been lo$ered. )he numbers of Mergers and Ac uisitions

    have increased many times in the last decade compared to the slack period of

    (*+-,+s $hen legal hurdles trimmed the M&A gro$th. )o put things in

    perspective# from mergers in ((,# the number crossed to over ,+ in /0+ .

    %ith a do$nturn in the capital markets# valuations have come do$n to historic

    lo$s. It's high time that the consolidation game speeds up.

    In simple terms# a merger means blending of t$o or more existingundertakings into one# conse uent to $hich each undertaking $ould lose their

    separate identity. )he most common reasons for mergers are# operating synergies#

    market expansion# diversification# gro$th# consolidation of production capacities

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    and tax savings. 1o$ever# these are 2ust some of the illustrations and not theexhaustive benefits.

    1o$ever# before the idea of Merger and Ac uisition crystalli es# the firm

    needs to understand its o$n capabilities and industry position. It also needs to

    kno$ the same about the other firms it seeks to tie up $ith# to get a real benefit

    from a merger.

    3lobali ation has increased the competitive pressure in the markets. In a

    highly challenging environment a strong reason for merger and ac uisition is a

    desire to survive. )hus apart from gro$th# the survival factor has off late# spurred

    the merger and ac uisition activity $orld$ide.

    OBJECTIVE OF STUDY:

    )o discuss the form of mergers and ac uisitions.

    )o highlight the real motives of merger and ac uisitions.

    )o focus on the considerations that are important in the mergers and

    ac uisitions negotiations.

    )o find out reason for merger in the banking sector.

    )o understand the implications and evaluation.

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    ST. XAVIERS COLLEGE, KOLKATA

    METHODOLOGY: ACCOUNTING APPROACH

    Accounting methodology using the benchmark approach is one of the commonly

    and fre uently used accounting approaches to asses the performance of a company

    follo$ing a merger or an ac uisition. )his approach compares the financial

    performance the ac uiring companies $ith either a non-ac uiring companies in the

    same line of business of a smaller si e or $ith companies $hich have never

    engaged in a merger or ac uisition deal.

    4ifferent ratios are employed to asses the financial performance of the companylike 5eturn on 6 uity !576" and 5eturn on Assets !57A". 4ifferent values

    re uired can be found in the balance sheet of the company. )he income statement

    is also a ma2or part of financial statement of the company. )he annual reports of

    the company can be found on the internet or different published sources.

    After conducting the ratio analysis# the next step is to compare the results $ith the

    values of the benchmark company or companies# to compare the profitability. )his benchmark is usually one or more industry competitors in same line of business. If

    the value of the ratios such as 576 and 57A is found to be less than that of the

    benchmark group# one can conclude that the merger didn't result in improved

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    performance and didn't create value for the shareholders having a negative effecton profitability and vice-versa.

    Strengths of accounting methodology

    " Accounts are certified.

    " 8sed by investors in 2udging corporate performance. An indirect measure of

    economic value creation.

    Weakness of accounting methodology

    " 9ossibly non-comparable data for different years. :ompanies may change their

    reporting practices. Also reporting principles and regulations change over time.

    " Back$ard looking.

    ;" Ignores value of intangible assets.

    " 4ifferences among companies in accounting policies adds noise.

    4ifferences in accounting principles from one country to the next make cross-

    border comparison difficult.

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    ? :ontents ?

    Chapters Page No.

    :hapter . Introduction to Mergers and Acquisition. 7-12

    :hapter . Purpose of merger and acquisition. 13-16

    :hapter ;. Types of Mergers. 17-20

    :hapter

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    Introduct on to !ergersand Ac"u s t on

    BUSINESS FIRMS IN THEIR PURSUIT OF GROWTH,ENGAGE IN BROAD RANGE ORESTRUCTURING ACTIVITIES. ACTIONS TAKEN TO EXPAND OR CONTRACT A FIRMS BAOPERATIONSO OR FUNDAMENTALLY CHANGE ITS ASSETS OR FINANCIAL STRUCTURE ARREFERRED TO AS CORPORATE RESTRUCTURING ACTIVITIES.

    CORPORATE RESTRUCTURING IS A BROAD UMBRELLA THAT COVERS MANYTHINGS.ONE OF THE M IS THE MERGER OR TAKEOVER.FROM THE VIEWPOINT OF THE BUYEM&A REPRESENTT EXPANSION AND FROM THE PERSPECTIVE OF THE SELLER IT REPRESENTA CHANGE IN OWNERSHIP THAT MAY OR MAY NOT BE VOLUNTARY.IN ADDITION MERGERS,TAKEOVERS,AND CONTESTS FOR CORPORATE CONTROL,THERE ARE OTHER TYPECORPORATE RESTRUCTURING LIKE DIVESTITURES,REARRANGEMENTS,AND OWNERSHREFORMULATION

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