Mahima Synopsis

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A

RESEARCH PROJECT

ON

CORPORATE RESTRUCTURING

(WITH REFERENCE TO STEEL INDUSTRY)

Submitted To:-

KURUKSHETRA UNIVERSITY, KURUKSHETRA

In partial fulfillment of the requirement

of the award of the degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)

(Session 2008-2010)

Under the Guidance of: Submitted By:

Ms. Shuchi Gupta Mahima Mittal

Faculty, MBA MBA (final)

Roll No.: 503

Maharaja Agarsen Institute Of Management And Technology

Jagadhri-135003

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CERTIFICATE

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DECLARATION

I, Mahima Mittal, hereby declare that the work embodied in the research project report

MERGER & ACQUISITION was done by me under the able supervision of Dr. Shuchi

Gupta (faculty MBA)

This project is done for the partial fulfillment of Degree of Master of Business

Administration program of Kurukshetra University Kurukshetra from Maharaja Agrasen

Institute of Management & Technology, Jagadhri. I have not submitted his report to any

other Institute or University for the award of any other degree.

(MAHIMA MITTAL)

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ACKNOWLEDGEMENT

It is matter of great satisfaction & pleasure to present this presentation on MERGER &

ACQUISITION WITH REFERENCE TO STEEL INDUSTRY . I take this opportunity

to owe my thanks to all my faculty members for their encouragement and able guidance

at every stage of this report.

There are people who simply by being there influence & inspire me to do thing. I am

grateful to Dr. Raj Kumar Goyal (Director ,MAIMT) for creating a conducive

environment in the institute for a purposeful education.

I am grateful to Mr. Adarsh Aggarwal (HOD,MBA Deptt.) for his encouragement. I

acknowledge my gratitude and indebtness to my internal project guide Dr. Shuchi Gupta

(faculty, MBA) ,who spared her precious time in guiding me and for making valuable

suggestions in compiling this project report .

I express my gratitude towards all those people who have helped me directly or indirectly

in completing this report.

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PREFACE

Learning comes from doing .To learn something one has to correlate the theoretical

concepts with practical experience .Recognizing this fact , the KUK University has made

it essential for Management students to undergo researches & project works . As without

practical knowledge a student is just like getting a driving licence without having

actually driven a vehicle.

The research project Corporate Restructuring with reference to steel industry is

undertaken to diagnose the impact of merger & acquisition on the performances of

companies ,reasons behind the strategic decision , critical issues involved in the same .

Firstly, the project includes the overview of merger & acquisition , then the successful

stories of TATA CORUS, ARCELOR - MITTAL

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CONTENTS

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INTRODUCTION

Mergers & Acquisitions

Mergers:

When two or more companies agree to combine their operations ,where one company

survives and the other loses its corporate existence , a merger is effected.the surviving

company acquires all the assets & liabilities of the merged company. the company thar

survives is generally the buyer and it either retain its identity or the merged company is

provided with a new name.

Absorption: it involves the combination of two or more companies, in which one of the

companies survives with its identity and the other is dissolved.

Consolidation: in a consolidation, the existing companies are dissolved , a new company

is formed to combine the assets of the combining companies , and stock in the

consolidated company is issued to the shareholders of both companies.

Example; the exxon merger with mobil oil company is technically a consolidation.

FORMS OF MERGER

ABSORPTION CONSOLIDATION

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Horizontal MergersThis type of merger involves two firms that operate and compete in a similar kind of

bussiness .the merger is based on the assumption that it will provide economies of scale

from the larger combined units

Vertical Mergers:

Vertical mergers take place between firms in different stages of production/operation,

either as forward or backward integration .the basic reason is to eliminate costs of

searching for prices, contracting, payment collection and advertising and may also reduce

the cost of communicating and coordinating production.Both production and inventory

can be improved on account of efficient information flow within the organization

.Forward integration takes place when a raw material supplier finds a regular procurer of

its products while backward integration takes place when a manufacturer finds a cheap

sorce of raw material supplier.

Conglomerate Mergers:

Conglomerate mergers are affected among firms that are in different or unrelated

business activity .Firms that plan to increase their product lines carry out these types of

mergers. Firms opting for conglomerate merger control a range of activities in various

industries that require different skills in the specific managerial funcins of research,

TYPES OF

MERGER

HORIZONTAL MERGER

VETICALMERGER

CONGLOMERATE MERGER

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applied engineering , production, marketing and so on. This type of diversification can be

achieved mainly by external acquisition and mergers and is not generally possible

through internal development . These types of mergers re also called concentric mergers.

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COSTS & BENEFITS OF MERGER

When Company A acquires another company say B ,then it is a capital investment

decision for company A and it is a capital disinvestment decision for company B.

Thus, both the companies need to calculate the NET PRESENT VALUE (NPV),

of their decisions.

To calculate the NPV to company A there is a need to calculate the benefit and

cost of the merger.

The benefit of the merger is equal to the difference between the value of the

combined identity (PVAB) and the sum of the value of both firms as a separate

entity.

It can be expressed as :

Benefit = (PVAB) (PVA + PVB)

Assuming that compensation to firm B is paid in cash , the cost of the merger from the

point of view of firm A can be calculated as :

Cost = Cash PVB

Thus, NPV for A = Benefit Cost

= (PVAB (PVA+ PVB)) (Cash PVB)

The net present value of the merger from the point of view of firm B is the same as the

cost of the merger for A.

Hence, NPV to B =( Cash PVB)

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In the above scenario we assumed that compensation is paid in cash , however in real life

compensation is paid in terms of stock. In that case, cost of the merger needs to be

calculated carefully .

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MODEL FOR DETERMINING EXCHANGE RATIO

MODEL FOR DETERMINING EXCHANGE RATIO IS GIVEN BY LARSON &

GONEDES .

This model holds that each firm will ensure that its equivalent price per share will be at

least maintained as a sequel to the merger.

This model has been simplified using following symbols:

ER Exchange Ratio

P Price Per Share

EPS Earnings Per Share

PE Price EarningsE Earnings

S No. of Outstanding Equity Shares

AER Actual Exchange Ratio

Firm-1 Acquiring Firm

Firm-2 Acquired Firm

Firm-12 Combined Firm

Firm1- would insist that the wealth of its shareholders is preserved i.e. the price per share

of the combined firm is at least equal to the price per share of firm-1 prior to the merger

P12>=P1

For simplicity, the equality relationship will be used

P12=P1

The market price per share of the combined firm is experienced as the product of price

earnings ratio & earnings per share.

P12=(PE12)(EPS12)=P1

The earnings per share of the combined firm are expressed as:

EPS12 = E1+E2

S1+S2(ER1)

ER1 represents the no. of shares of FIRM-1 given in lieu of one share of FIRM-2

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EPS12 may be related as:

P1 = (PE12)(E1+E2)

S1+S2(ER1)

Solving the ER1 yields:

ER1 = -S1+(E1+E2)(PE12)

S2 P1S2

EXAMPLE:

Firms 1&2 are discussing a merger deal in which Firm-1 will acquire firm2 the

relevant information about the firm is given below:

FIRM-1 FIRM-2

Total Earnings Rs 18mln Rs. 6 mlnNo. of Outstanding Shares Rs. 9 mln Rs. 6 mln

Earning Per share(EPS) Rs. 2 mln Rs. 1 mln

Price Earning Ratio(PE) 12 8

Market Price Per Share(P) Rs 24 mln Rs.8 mln

Put in the above equation:

ER1=-1.5 + 1/6(PE12)

The maximum exchange ratio acceptable to the shareholders of Firm-1 depends on thevalue of PE!2

PE12 3 9 10 11 12 15 20

Max.ER1 -1 0 0.17 0.33 0.50 1 1.83

MINIMUM EXCHANGE RATIO

Required by the shareholders of Firm-2 in order to preserve their wealth can be

determined in the following manner :

P12 ER2>=P2

For simplification we use:

(PE12)(EPS12)(ER2)=P2 [P12=(PE12)(EPS12)]

Replacing EPS12

PE12 * [E1+E2]*ER2 =P2

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S1+S2(ER2)

Solving for ER2

ER2 = P2S1________

(PE12)(E1+E2)-P2S2

Putting the values we get

ER2 = 8+9

24(PE12)-8*6

ER2= 3___

PE12-2

The minimum exchange ratio acceptable to the shareholder of Firm-2 depends on the

value of PE12

PE12 3 9 10 11 12 15 20

Min. ER2 3 0.43 0.38 0.33 0.30 0.23 0.17

Maximum ER1 and minimum ER! Coincide at 0.33 i.e. PE12 should be 11 and exchange

ratio acceptable to both the shareholders of Firm 1 & 2.

ACQUISITIONS:The term acquisition means an attempt by one firm , called the acquiring firm, to gain a

majority interest in another firm , called target firm. The effort to control may be a

prelude:

To a subsequent merger or

To establish a parent subsidiary relationship or

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To break up the target firm , and dispose off its assets or

To take the target firm private by a small group of investors .There are broadly

three kinds os strategies that can be employed in corporate acquisitions .These

include:

FRIENDLY TAKEOVER : It is organized by the management view of parting with

the control of management to another group through negotiation .the terms and

conditions of takeover are mutually settled by both the groups.

BAILOUT TAKEOVER: It is an acquisition when a profit earning company takesover a financially sick company to bail it out. Normally such takeovers are in

pursuance of a scheme of rehabilitation approved by public financial institutions.

HOSTILE TAKEOVER: It is also referred to as RADE or company in order to

takeover the management of , or acquire controlling interest in the target company .A

person or group of persons acquire share from the open market financial institutions/

mutual funds/willing shareholders at a price higher than the prevailing market price

such takeover are the hostile for the existing management.

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MODES OFACQUISITION/TAKEOVER

FRIENDLYTAKEOVER

BAILOUTTAKEOVER

HOSTILE

TAKEOVER


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Acquisition can take place in two forms these are:

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SHARE PURCHASES: In this buyer, buys the shares of the target company from the

shareholders of the target company.The buyer will takeon the company with all its

assets and liabilities .

ASSET PURCHASES: In this buyer buys the assets of the target company from the

target company. In simplest form this leaves the target company as an empty shell

and the cash it receives from the acquisitions is then paid bac to its shareholders by

dividend or through liquidation. However, one of the advantages of an asset purchase

for the buyer is that it can :cherry-pick the assets that it wants and leave the assets

and liabilities that it does not. This leaves the target in a different position after the

purchase , but liquidation is nevertheless usually the end result.

MANAGING AN ACQUISITION PROGRAMME

To make an acquisition strategic decision to be a successful one we have develop a

disciplined acquisition programme consisiting of the following steps:

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FORMS OFACQUISITION

SHARE PURCHASES ASSET PURHASES


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Step-1:

Managers before going for mergers & acquisition must evaluate its company itself. This

will enable the acquiring company to understand well its strengths and weaknesses and

deepen the acquirers insight into the structure of its industry.

Also the entire exercise of identifying targets must be kept very confidential .Should the

market come to know of a proposed takeover ,the price of the target will rise and perhaps

jeopardize the deal itself.

Step-2:

The ideas generated in above stage will have to be filterd .screening criteria that make

sense for the acquiring companys perspective need to be used.For example, an acquirermay eliminate companies that are;

Too large (market capitalization of equity in excess of rs.100 crore ),or

Too small (revenues less than Rs.10 crore);or

Manage the pre-acquisition phase

Screen candidate

Evaluate the remaining candidates

Determine the mode of acquisition

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Manage the post-acquisition integration

Negotiate the deal


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Engaged in a totally unrelated activity, or commanding a high price earnings

multiple(in excess of 25), and so on the others criteria.

Step-3:

Screening criteria applied in stage-2 will narrow down the list of candidates . Now each

of them should be examined thoroughly on the basis of financial capability,earning

capacity,viability study.

Step-4:

A company can go for any of the given modes i.e. friendly ,bailout or hostile takeover

.the choice of the mode is guide d by the regulations governing them, the time frame the

acquirer has in mind ,the resources the acquiree wishes to deploy,the degree of control

the acquirer wants to exercise, and the extent to which the acquirer is willing to assume

contingent and hidden liabilities.

Step-5:

For successful negotiation ,the acquiring firm should know how valuable the acquisition

candidate to the firm, to the present owner and to other potential acquirers.While

negotiating the deal an acquirer would do well to remember the following advice ofCopeland,your objective should to pay one dollar more than the value to the next highest

bidder ,and an amount is less than the value to you.

This implies that the acquiring firm should identify not only the synergies that it would

derive but also what other acuirers may obtain .Further, the acquiring firm should assess

the financial condition of the existing owner and other potential acquirers.

Step-6:

After acquisition, changes sought to be introduced by the new controlling group are

likely t o challenge deep-seated values,beliefs,styles,traditions and practices.

So to manage the post integration two guidelines are:-

Treat people with dignity & concern

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Anticipate the problem and solve it as early as possible.

FINANCING M& A

Mergers are generally differentiated from acquisitions partly by the way in which they

are financed and partly by the relative size of the companies.Various methods of

financing an M&A deal exist:

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CASH

Payment by cash .such transactions are usually termed acquisition rather than merger

because the shareholders of the target company are removed from the picture and the

target comes under the (indirect) control of the bidders shareholders alone.

A cash deal would make more sense during a downward trend in the interest rates

.Another advantage of using cash for an acquisition is that these trends in lesser chances

of EPS dilution for the acquiring company .But a caveat in using cash is that it places

constraints on the cash flow of the company.

FINANCING

Financing capital may be borrowed from a bank ,or, raised by an issue of bonds

.Alternatively, the acquirers stock may be offered as consideration. Acquisitions

financed through debts are known as leveraged buyouts if they take the target private ,and

the debt will often be moved down onto the balance sheet of the acquired company.

HYBRIDS

An acquisition can involve a combination of cash and debt, or a combination o cash and

stock of the purchasing entity.

FACTORING

Factoring can provide the necessary extra to make a merger or sale work.

SWOT ANALYSIS OF THE STEEL INDUSTRY

Strengths

1. Availability of iron ore and coal

2. Low labour wage rates

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3. Abundance of quality manpower

4. Mature production base

Weaknesses

1. Unscientific mining

2. Low productivity

3. Coking coal import dependence

4. Low R&D investments

5. High cost of debt

6. Inadequate infrastructure

Opportunities

1. Unexplored rural market

2. Growing domestic demand

3. Exports

4. Consolidation

Threats

1. China becoming net exporter

2. Protectionism in the West

3. Dumping by competitors

LEGAL & PROCEDURAL ASPECTS OF MERGERS & ACQUISITIONS

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Examination of object clause

Intimation to stock exchange

Approval of the draft

Application to the high court

Dispatch of notice to shareholders

Holding of meetings

Petition to the court

Filing the order with the registrar

Transfer of assets & liabilities

Issue of shares & debentures

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1.EXAMINATION OF THE OBJECT CLAUSE this clause defines the areas in which

management can take their decisions.So before going for the merger & acquisitions you

have to check whether your object clause allows you or need any alteration accordingly.

2.INTIMATION TO STOCK EXCHANGES if the companies or any company listed

into the stock exchange has to intimate the respective exchanges for their action of

mergers or acquisition.

3.APPROVAL OF THE DRAFT OR AMALGAMATION PROPOSAL BY THE

RESPECTIVE BOARDS- board of directors of both the companies must give their

approval for entering into mergers or acquisitions of their firms.

4.APPLICATION TO HIGH COURT High court observes whether this action is taken

after considering the interest of all the parties or not, if required make arrangements for

the meeting of shareholders ,creditors for protecting their interest.

5.DISPATCH OF NOTICE TO SHAREHOLDERS- shareholders includes

shareholders,creditors,suppliers or other parties have interest associated with the

companies.

It is mandatory to publish the notice in 2 types of newspapers ,one must be in regional

newspaper and another in English.

6.HOLDING OF MEETING OF SHAREHOLDERS & CREDITORS- minimum quota is

75% of shareholders or creditors in each class to vote either in person or by proxy must

approve the scheme.

7.PETITION TO THE COURT- is necessary for confirmation or passing of court orders,

court after hearing the interested parties passes the orders that whether this merger or

acquisition is fair or not. On this scheme if any party has some objection then court if find

necessary makes orders for changes .

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8.FILING THE ORDER WITH THE REGISTRAR- it includes submitting all the

necessary documents and the order passes by the court with the registrar so that scheme

will be properly registered.

9.TRANSFER OF ASSETS & LIABILITIES- into the acquiring firms

10.ISSUE OF SHARES & DEBENTURES- in the name of new entity.

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CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel

production in Asian countries. China accounts for one third of total production i.e. 419m

ton, Japan accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is

accounted for 49m ton, which all totally becomes more than 50% of global production.

Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.

The steel industry has been witnessing robust growth in both domestic as well as

international markets.

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LITERATURE REVIEW

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LITERATURE REVIEW

P.SURESH & PROF. R. PADMANABHAN (2007), MERGERS &

ACQUISITIONS In todays global business environment, companies may have to

grow to survive, and one of the best ways to grow is by merging with another company or

acquiring another company. This study highlights the importance of mergers and

acquisition through the successful stories of MITTAL-ARCELOR who has become the

worlds number one steel company. TATA-CORUS deal which is the largest takeover of

a foreign company and will create the worlds fifth largest steel group. KINGFISHER-

DECCAN deal results show that the synergies between Kingfisher and Deccan have

resulted in cost performance improvements that have defied popular predictions.

ADHIKARI, ANAND (2006), ON TOP OF THE WORLD A flurry of M&A has

pitch forked some Indian companies into the global league .After the rash of global

mergers & acquisitions by Indian companies , many of them find themselves in the

rarefield top echelons of world rankings. For instance, BHARAT FORGE is today the

second largest forgings company in the world after acquiring Germanys largest forging

company in November 2003.

Likewise , Tata Tea has emerged as the second largest branded Tea company after it

bought UKs Tetley in February 2000, more recently, after it acquired the operations of

France based Thomson SA, Videocon became the worlds largest television picture

tube maker and, after it closes the deal to acquire CORUS, TATA STEEL could become

the fifth biggest steel company.

ENVESTINDIA.COM (2005), Essar steel buys out Hy- grade Pellets Ltd. (HGPL)

and steel corporation of Gujarat Ltd. (SCGL) from stemor for $450 mn June 9- With

these acquisitions ,Essar Steel becomes a totally integrated steel producer with end- to

end control over raw materials , processess, technology, and finished products.

Commenting on the completion of the transaction, Essar Steel managing director

Prashant Ruia said, we expect these acquisitions to bring in increased synergy and

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seamless integration in our operations and help strengthen the company .we look

forward to consolidating our position in the market ,especially in the value added

segment ,he added.

The acquisition of HGPL is expected to bring in benefits of high quality

Raw material and considerably better yields in steel making , Essar steel reckons,

SCGLs acquisition will bring in 1.2 million tonne of cold rolling capacity into Essar

Steel , making it one of indias largest producers of cold rolled products.The company

expects this to provide a wider market penetration capability and offer a hedge against

cyclacity in domestic and international markets.

DASH, ASHUTOSH (2004), VALUE CREATION THROUGH MERGERS ; the

Myth and reality - the study focuses on the wake of the recent changes in the Indian

economic scenario ; many companies have embraced mergers as a restructuring tool for

salvation . Such a move, though supported by powerful arguments and theories , is

questioned in many empirical studies. It examines economic consequences of mergers

with a view of resolving a conflict , the event study methodology employed to assess the

extent of value creation by mergers, indicates that on an average mergers lead to values

destruction , irrespective of their pattern over a long period of time and the destruction of

value is relatively greater in case of unrelated mergers.

SCHWEIGER (2003), FRAMEWORK FOR EXECUTIVES AND MANAGERS,-

the study focuses on the very nature of mergers and acquisitions is to provide ompanies

with new markets and lowering operating costs through consolidation of resources .In the

process, challenges ar often overlooked such as clashes in culture , style and egos .It

further leads to most opportunity , diminished shareholders value and significant trauma

to shareholders, employees and importantly to the company itself .M&A integration

provides a practical and easy to follow for managing and directing each step in the

volatile integration explaining how to master each step in the process.

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ABDUL RAHIM AHMED (2007),CORPORATE GOVERNANCE IN BANKS

UNDERGOING M&A,- This paper on Corporate Governance In Banks Undergoing

Merger And Acquisition presents a case on banks that have recently undergone the

process of M&A in Pakistan and the steps these banks should take in order to encompass

corporate governance to ensure higher profitability and employees' satisfaction. Effective

corporate governance involves a set of relationships between a company's management,

its board, its shareholders and other stakeholders. It is also about promoting corporate

fairness, transparency and accountability. Banks can easily safeguard their risk exposures

and build their sustainable competitive advantage via imposing corporate governance.

This paper also explains the six key tools of corporate governance that can be used by

banks to counter problems that are evident during M&A.

RAINER LENZ (2008),THE LOGIC OF M&A PRICING- The valuation of

synergy is vital to the success of any merger, however, given current valuation

methodologies and the complexity of the task; it is also the most challenging element of

merger and acquisition pricing. Conventional valuation methods assume that sales figures

and market share of the acquiring company are easily transferable within the new entity.

Current synergy practices also assume amalgamating various corporate functions will

produce significant cost reductions. The key component missing from current

methodologies is the failure to analyze every corporation as a complex system containing

various elements and relations. If such a delicate system is segmented due to a merger,

the outcome measured in turnover and profit figures can not be accurately forecasted by

simply aggregating key financial figures. The goal of this article is to go beyond the

simplicity of current methods in order to develop a methodology better suited for

evaluating synergy effects. This new approach integrates elements from both the

framework of knowledge management and the sociological theory of systems and

elements. The alternative methods proposed in this article will simultaneously deliver

creative and innovative solutions to enhance the success of mergers and acquisitions.

These new proposals also help to clarify the short comings plaguing traditional methods

which inevitably lead to the destruction of shareholder wealth

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MARTIN.J.CONVON (2003), DO WAGES RISE OR FALL FOLLOWING

MERGER?- This paper provides a systematic empirical analysis of the effects of

merger and acquisition activity on profitability and firm level employee remuneration in

the United Kingdom, using a specially constructed database for the period 1979-1991. It

finds that both profitability and wages rise following acquisition, and firms that merge

within the same industry division experience larger increases in profitability and pay their

workers higher wages than those engaged in unrelated acquisitions. This is, in part, the

result of an increase in the efficiency with which labour is used following related

acquisition

THEODORE EISENBERG,GEOFFREY P. MILLER, Ex Ante Choices of Lawand Forum: An Empirical Analysis of Corporate Merger Agreements - Legal

scholars devote much attention to the incorporation puzzle - why corporations so

frequently incorporate in Delaware. This paper suggests that focusing on the

incorporation decision overlooks a broader but intimately related set of questions.

Choosing Delaware as the incorporation situs is, effectively, a choice-of-law decision.

Incorporating in Delaware selects Delaware law for (and authorizes Delaware courts to

adjudicate) legal disputes about the allocation of a firm's governance authority. In this

sense, the incorporation decision is similar to any setting in which a company selects a

law or authorizes a dispute resolution forum. We study a data set of 412 merger and

acquisition contracts contained as exhibits in SEC Form 8-K filings over a seven month

period in 2002 to assess the decisions the parties have made regarding choice-of-law and

choice-of-forum. Although these contracts frequently select Delaware law and Delaware

as a forum, there is a relative "flight" from Delaware in this contractual setting. Delaware

corporations choose Delaware law less than other corporations choose the law of their

state of incorporation. Furthermore, many contracts specifying Delaware law did not

specify Delaware as the litigation forum. Contracts designating Delaware law tend to

choose Delaware as a litigation forum less than contracts that designate other states' laws

tend to choose such states as a litigation forum. Delaware was the place of incorporation

for 189 merger contracts; it was the choice of law for 132. With respect to forum

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selection, 115 contracts that designated a forum had Delaware corporate acquirers. Yet

only 64 contracts specified Delaware as the litigation forum. In contrast, for example,

New York had eight corporate acquirers and 45 contracts specifying that New York law

governed. We investigate the determinants underlying these decisions about choice-of-

law and forum selection. Regression results

NIGEL FINCH,TYRONE M CARLIN,GUY FORD (2006), A Deal Too Far - the

Case of the Killer Acquisition - Merger and acquisition transactions are often

explained and justified by reference to their potential capacity to generate value - for

example through the achievement of operational synergies, critical scale or optimal

scope. In contrast, a significant and growing literature questions the worth of acquisition

transactions as value generating devices, and the motivations of managers who initiatethem. This literature sheds light on the impact of corporate acquisitions by pointing to

evidence of the consistent failure of significant numbers of such transactions to generate

improved shareholder value, and, concomitant with this, the loss of shareholder value

which often results. In some transactions however, the loss of value attributable to

acquisitions is of such a magnitude that it threatens the continued existence of the firm

initiating the purchase - a phenomenon which has to date attracted comparatively little

attention. This paper provides insights into the "killer acquisition" phenomenon by means

of a detailed review of one such transaction, the acquisition of Australian bulk wine

producer Cranswick Premium Wines by Australian boutique producer Evans & Tate

limited. The analysis demonstrates how factors such as failed governance arrangements,

lack of due diligence, pursuit of an inappropriately sized target and failure to appreciate

the impact of a shifting strategic environment can transform the adverse value

consequences of an acquisition transaction from regrettable but manageable to existence

threatening within a short timeframe.

HUONG N. HIGGINS (2006), Impact of Pro-M&A Legislation in the 1990s -

This paper examines the markets reaction to news of corporate mergers and acquisitions

(M&A) by Japanese bidders during the 1990s. Domestic versus global bids and pro-

M&A legislation are considered as determinants of bidders abnormal returns. The results

show that bidders for domestic targets earn significant abnormal returns after the

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institutions of pro-M&A legislation in Japan. These findings help determine gains from

trading strategies for M&A deals in Japan, and provide insight into the current M&A

environment in Japan as shaped by pro-M&A legislation.

EDWARD PEKAREK,MICHELA HUTH (2008), Bank Merger Reform Takes an

Extended Philadelphia National Bank Holiday -The past, present and future of

banking consolidation is examined with an aim toward modernizing the approach of

multi-agency antitrust analysis in the U.S. that is based on the Supreme Court's decision

in the matter of United States v. Philadelphia National Bank, 374 U.S. 321 (1963).

Reform of outdated merger review methodologies is advocated.

CONSUELO L WAIGHT (2004), HRD Involvement in the Investigative Phase of a

Merger & Acquisition - This qualitative study describes the involvement of human

resource development (HRD) professionals in the investigative phase of merger and

acquisitions (M&As). Telephone interviews were completed with 38 HRD professionals

and 17 business managers in 12 organizations that had undergone M&As between 1996

and 1999. The results show that there is some cognizance between business managers and

HRD professionals on what HRD professionals do during an M&A. What is most

significant, however is that the activities identified by both business managers and HRD

professionals are all human-capital related; this shows that business managers and some

organizations are not only involved in finance related but also human capital due-

diligence during an M&A. The study results show that M&A activities are team-oriented

and HRD professionals need to be prepared to work in different projects during an M&A,

especially during the investigative phase. The notion that HRD professionals will be

solely working on HRD-related activities is non-existent during the investigative phase of

an M&A.

REBEL A COLE, KENNETH R FERRIS, ARIE MELNIK (2010), The Cost of

Advice in Merger & Acquisition Transactions - In this study, we estimate the cost of

advice associated with pre-merger or pre-acquisition due diligence. Mergers and

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acquisitions (hereafter 'mergers') are significant resource-consuming activities for

businesses. The benefits of synergism, efficiency and market power associated with a

merger may be realized at some point in the future, but real spending commitments (e.g.,

the cost of merger advice) are made by a potential acquirer even before any

announcement of a proposed transaction. Using the actual amounts paid to accounting

firms as the 'cost of advice,' we find that these short-term costs are nontrivial.

Consequently, we hypothesize that the cost of pre-merger advice explains a large share of

the decline in acquiring-firm shareholder wealth that is frequently observed in such

transactions. We also find that the primary determinants of these costs are the financial

size of a deal and the complexity of a deal as proxied by whether the transaction involved

a domestic or international target. We do not find that the method of payment utilized to

facilitate a transaction affects the cost of the merger advice.

ELY R LEVY (2002), Corporate Courtship Gone Sour: Applying a Bankruptcy

Approach to Termination Fee Provisions in Merger and Acquisition Agreements -

This paper examines Delaware's judicial treatment of deal protection measures,

particularly termination fee provisions. The paper explores the tension between the

economic function of these provisions in inducing bidders and potentially compensating

them for opportunity and transaction costs in the event of deal termination vs. the ability

of large termination fees to constrain and coerce shareholder choice by obligating the

target to pay out the fee in the event of a shareholder no vote.. In light of these issues, the

paper explores the different standards of review that Delaware courts have and could

potentially apply in ex post review of agreements containing termination fees. Ultimately,

the paper argues that there are sufficient policy justifications to adopt more substantive

review of these provisions. In light of several identifiable policy justifications, the paper

suggests that a best interest standard that is used by bankruptcy courts in their more

substantive review of termination fees in asset purchase agreements be adopted by the

Delaware Courts analogously in the mergers and acquisitions context.

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.PHILIP ALSTON , (2002), Resisting the Merger and Acquisition of Human

Rights by Trade Law:- Petersmann's proposal for the enforcement of human rights

through the WTO is presented as though it were simply a logical development of existing

policies, rather than representing a radical break with them. In a form of epistemological

misappropriation he takes the discourse of international human rights law and uses it to

describe something which is in between a Hayekian and an ordoliberal agenda. It is one

which has a fundamentally different ideological underpinning from human rights law and

would have extremely negative consequences for that body of law. Many of his

characterizations of the existing state of the law - whether at the national, EU or

international levels - are questionable. What is needed is for all participants in the debate

over the future relationship between trade and human rights, be they ordoliberals such as

Petersmann or mainstream human rights proponents, to move beyond such analyses and

to engage in a systematic and intellectually open debate which acknowledges the

underlying assumptions and meets a higher scholarly burden of proof than has so far been

the case.

RACHEL A.J CAMPBELL, ROMAN KRAUSSL,(2007), Merger and Acquisition

Behavior in European Banking- This research is the first to examine the empirical

predictions of a real option-pricing model using a large sample of data on mergers and

acquisitions in the European banking industry. We find empirical support for a model that

estimates the value of an option to wait in accepting an initial tender offer. Market prices

reflect a premium for the option to wait to accept an offer that has a mean value of 14%

for a sample of 100 mergers or acquisitions in the European banking industry. We

provide evidence that the size of the acquiring banks and the debt to equity ratio of the

target bank play a significant role in determining the premium paid in the acquisition

process. Our findings have important implications for future M&A behavior in the

banking industry.

.SURASAK (MATT) NGAMMEKCHAI, (2008), How Do Human Capital Assets

Affect Cumulative Abnormal Returns During Merger and Acquisition

Announcements?- The acquisition of physical assets is very different from acquisition

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of human capital assets. Holding physical asset size fixed, acquisitions involving more

target employees are associated with lower announcement period returns. This effect is

strongest in 1) within-industry mergers, 2) cross-region mergers, and 3) mergers

involving employees with high-valued skill sets. Each of these conditions suggests M&A

transactions that require significant integration of human capital, and therefore, possible

employee resistance. This EF effect subsumes the size effect seen in previous literature;

that is, controlling for this EF, merger size is unrelated to announcement period returns.

GEORGIA SIOUGLE, SPYROS I. SPYROU,(2010), Informed Trading Around

Merger and Acquisition Announcements - This paper offers new evidence on informed

trading around merger and acquisition announcements from the UK equity and options

market. The analysis suggests that in about 25%-33% of events there is abnormal option

trading volume during the month that precedes the announcement. Such evidence is

found in both call and put option volumes, is robust to different estimation and event

window lengths, different sub-samples, and to liquidity considerations. In addition, the

findings indicate abnormal pre-event stock returns, mainly for large firms that have

equity option contracts traded on their common shares. These results support the

argument that informed investors will transact in both the options and the stock market,

and are comparable to results reported by the FSA in the cash market.

HAZEM DAOUK, GUOHUA LI, (2009), Institutional Trading and Front-Running

Behavior Around Corporate Merger and Acquisition Announcements - Merger and

Acquisition (M&A) activities are not well-anticipated corporate events in the equity

market. Do institutional investors have material non-public information before M&A

announcements, and front-run other investors? Using a high frequency institutional

trading dataset that combines publicly available NYSE Trades and Quotes (TAQ) data

with the institutional ownership report (13F), this paper investigates the daily trading

behavior of institutional investors on target firms before and after M&A announcements

in the US equity market from 1993 to 2004. I find that all institutional investors start to

accumulate net buying positions on target firms at far ahead of time as 30 days before an

announcement date. Institutional investors are not a homogeneous group in terms of

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trading strategies, regulations or information venues, but, surprisingly, they exhibit

similar trading patterns prior to the event. Controlling for other factors, this significant

trading pattern indicates that institutional investors may possess material non-public

information and use it to exploit profits. On and after announcement day, investment

advisors tend to be merger arbitragers and buy more shares of target firm stocks to

speculate on final deal consummation; while banks, insurance companies, and mutual

funds immediately reverse their positions to cash in, a behavior consistent with the early

informed traders acting as 'short-term profit takers.' Using probability of informed trading

(PIN) as a proxy to measure the cross-sectional degree of information asymmetry, I

confirm that the significant front-running pattern of institutional investors is associated

with a high probability of informed trading. Further, institutional net selling pattern on

rival firm of targets before the announcements shows that institutional investors have

better information on actual targets rather than have better models to predict possible

takeovers.

20.JULAPA JAGTIANI, ELIJAH BREWER III ,( 2007) , Target's Corporate

Governance and Bank Merger Payoffs - Commercial bank merger and acquisition

(M&A) transactions are especially informative for analyzing the impact of differing

corporate governance structures on the balance of corporate control between managers

and shareholders. We exploit these special characteristics to investigate the balance of

control between top-tier managers and shareholders using data from bank M&A

transactions over the period 1990-2004. Unlike research on non-financial firms, the

impacts of independent directors, managerial share ownership, and independent

blockholders on bank merger purchase premiums in this environment are likely to be

measured more consistently because of industry operating standards and regulations. It is

also the case that research on banks in this area has not received adequate attention. Our

model controls for risk characteristics of the target and the acquiring banks, the deal

characteristics, and the economic environment. The results are robust. Our results are

consistent with those found for non-financial firms, and are consistent with the

hypothesis that independent directors could provide an important internal governance

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mechanism for protecting shareholders' interests especially in large scale transactions

such as mergers and takeovers. We also find results consistent with the conflict of interest

argument, where top-tier managers tend to trade potential takeover gains in return for

their own personal benefits, such as job security and other employment related

perquisites. Our overall findings would support policies that promote independent outside

directors on the board of commercial banking firms in order to provide protection for

shareholders and investors at large.

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SIGNIFICANCE OF THE STUDY

In todays global business environment, companies are focusing on corporate

restructuring, and one of the best ways of it is Merger & Acquisition .Projects and

research works are the means to get an insight of the practical situations.Master of

Business Administration degree has given me a chance to carry out wholesome research.

The topic of my research is Merger & Acquisition with special reference to merger

and acquisition .in this new area there are many reasons for merger and acquisition it can

be growth , increased market share, increase the competency , reduce the high wallet of

taxes and many more.

The whole research revolves around the already merged and acquired companies who

made a history in business world specifically related to steel sectors i.e. Tata And Corus,

Arcelor Mittal.

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OBJECTIVES OF THE STUDY

1 .To study the impact of global crisis on steel industry.

2. To compare the performance of companies before and after merger & acquisition

3 To evaluate the strategic reasons behind the M&A decisions

4 To study the various issues involved in merger & acquisition

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RESEARCH METHODOLOGY

Redmen and Mory Defines: Researchas a systematic effort to gain new knowledge.

Why a research has been undertaken , how the research problem has been defined,in what

way the problem has been defined , what data have been collected and a lot of similar

other questions coined for research methodology.

RESEARCH DESIGN

The researcg design is a master plan specifying the method and procedures for collecting

and analyzing needed information . the research design in this research is the

EXPLORATORY RESEARCH.

DATA COLLECTION

This study depends upon the Secondary Data Collection. And the sources from where the

data is collected are

INTERNET BOOKS

JOURNALS

MAGAZINES

NEWSPAPERS

SCOPE OF STUDY:

This study is limited to the merger & acquisition of two corporate entities.These are:

Arcelor & Mittal

TATA & Corus

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INTRODUCTION TO COMPANIES

JAMESTJI TATA, FOUNDER

Tata Steel, formerly known as TISCO (Tata Iron and Steel Company), is a steel company

based in Mumbai, India. It is part of Tata Group of Companies.

Its main plant is located in Jamshedpur, Jharkhand, though with its recent acquisitions,

the company has become a multinational with its operations in various countries. The

registered office of Tata Steel is in Mumbai. In the year 2000, the Company was

recognized as the worlds lowest-cost producer of steel. The company was also

recognized as the worlds best steel producer by World Steel Dynamics in 2005. The

company is listed on BSE and NSE, and employs about 82,700 (2007).

Ratan Tata is the Chairman and B. Muthuraman is the Managing Director of the

company. Tata Steel is a limited company registered in India under the Companies Act,

1956.

Tata Steel was established by Indian Parsi businessman Jamshedji Nusserwanji Tata in

1907 (he died in 1904, before the project was completed)

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CORUS TAKEOVER

On October 20, 2006, Tata Steel announced that it had agreed to pick up a 100%

stake in the Anglo-Dutch steel maker Corus Group at 455 p. per share in an all

cash deal, cumulatively valued at GBP 4.3 billion (USD 8.04 billion).

On November 19, 2006, the Brazilian steel company CSN launched a counter

offer for Corus at 475 pence per share, valuing it at $8.404 billion).

On December 11, 2006, Tata preemptively upped the offer to 500 pence, which

was within hours trumped by CSNs offer of 515 pence per share, valuing the deal

at $ 9.6 Billion. The Corus board promptly recommended both the revised offers

to its shareholders.

On January 3, 2007, following the lack of agreement on an offer, the previously

mentioned auction process was triggered. Following the conclusion of the auction

process ( at an unprecedented length of nine rounds) conducted by the Panel in

accordance with Rule 32.5 of the Code (the Auction), Tata Steel announced the

proposed acquisition of Corus Group at 608p per share, that being 5p more than

CSNs top offer of 603p. The 6.7 billion deal includes 500 million of debt.

Corus is a customer focused, innovative-solutions driven company, whichmanufactures, processed and distributes steel and aluminium products and services to

customers worldwide.

Corus is Europes second largest steel producer with annual revenues of over 11

billion and a crude steel production of about 20 million tones and was formed on 6

October, 1999 through the merger of British steel and kininklije hoogovens.

Combining global expertise with local customer service, Corus offers value,

reliability and innovation.

Corus supplies a variety of innovative solution to a broad range of market.

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Arcelor was the worlds largest steel producer in terms of turnover and second largest in

terms of steel output, with a turnover of 30.2 billion and shipments of 45 million metric

tons of steel in 2004. The company ws created by a merger of the former companies

Aceralia (Spain), Usinor (France) and Arbed (Luxembourg) in 2002.

BUSINESS

Employing 94,000 employees in over 60 countries, it is a major player in all its main

markets: automotive, construction, metal processing, primary transformation, household

appliances and packaging, as well as general industry. With total sales of over 30

billion, Arcelor is the worlds largest steel producer in terms of turnover. It produces long

steel products and inox-steel. IN January 2006, Arcelor announced the acquisition of

Dofasco, Canadas largest steel producer with an annual output of 4.4 million tons.

Corus decides to sell Reasons for decision:

Total debt of Corus is 1.6bn GBP

Corus needs supply of raw material at lower cost

Though Corus has revenues of $18.06bn, its profit was just $626mn (Tatas revenue

was $4.84 bn & profit $ 824mn)

Corus facilities were relatively old with high cost of production

Employee cost is 15 %( Tata steel- 9%)

Tata Decides to bid: Reasons for decision:

Tata is looking to manufacture finished products in mature markets of Europe.

At present manufactures low value long and flat steel products while Corus

produces high value stripped products

A diversified product mix will reduce risks while higher end products will add to

bottom line.

Corus holds a number of patents and R & D facility.

Cost of acquisition is lower than setting up a green field plant and marketing and

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distribution channels

Tata is known for efficient handling of labour and it aims at reducing employee

cost and improving productivity at Corus

It had already expanded its capacities in India.

It will move from 55th in world to 5th in production of steel globally.

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MERGER WITH MITTAL

Arcelor declares merger with Mittal Steel

The company was the target of a takeover bid by its rival Mittal Steel on 2006-01-27.

However, the bid resulted in substantial increase in Arcelors share value. Two members

of the board of Arcelor, Guillermo Ulacia and Jacques Chabanier also resigned suddenly.

On May 26, 2006 Arcelor announced its intention to merge with Severstal. Since then

several economists, media and shareholders have questioned the intentions of Arcelor

announcing its merger with Severstal due to a perceived opacity in the transaction. But on

25 June, 2006, the Arcelor board decided to go ahead with the merger with Mittal Steel

and scrapped plans for Severstal merger. The new company is now called Arcelor

Mittal. Arcelor also paid Severstal 140 million as a fine for the fall out of their failed

talks. Lakshmi Mittal (owner of Mittal Steel) became the president and Joseph Klinsch

(formerly Arcelor chairman) was appointed chairman of the new company till his

retirement. Arcelors merger with Mittal created the worldwide leader in the steel

industry, increasing its bargaining power with suppliers and consumers.

Arcelor Mittal is the largest steel company in the world. The company was founded in

2006 when Arcelor and Mittal Steel merged. The company is headquartered in

Luxembourg, the former seat of Arcelor.

BUSINESS

The company is headquartered in Luxembourg, though Lakshmi Mittal works out of

offices in Berkeley Square in London. In its current form, it is expected to have a planned

capacity of 120 million tones. Its annual revenues are expected to be around $108 billion,

earnings of $20 billion and market capitalization of about $96 billion and will have

320,000 employees.

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Arcelor shareholders will receive 13 Mittal Steel shares and 155.06 euros in cash for 12

Arcelor shares. Mittal steel is also offering 13 Mittal steel shares and 188.42 euros in

cash for 12 Arcelor convertible bonds. Current Arcelor shareholders will own 50.5

percent of the combined group and the Mittal family 43.6 percent of the capital and

voting rights. The companys profit went up by 40% after the merger.

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ANALYSIS & INTERPRETATIONS

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OBJECTIVE 1

IMPACT OF GLOBAL CRISIS ON

STEEL INDUSTRY

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IMPACT OF GLOBAL CRISIS ON STEEL INDUSTRY

According to Prof.Nouriel Roubini,

"This is the worst financial crisis we had since the Great Depression" The crisis is

not v-shaped rather it is U-shaped as is shown in the figure 1

The three key pillars of the international financial markets are confidence, capital and

liquidity and these three are somewhat interrelated.Until ,September 2008 all these three

pillars were on a high and therefore, businesses across the various sectors were

performing in a robust manner.However, the confidence in the financial system was

shaken with successive crises across various banks in the US and Europe.This then

resulted in a significant erosion of capital in the banking industry in the developed world

which eventually spiralled into an unprecedented global financial crisis .This

phenomenon brought about a sharp decline in consumption of steel as it did in other

products , affecting the steel demand across the globe. Consequently , global liquidity

was choked and the manufacturing sectors including the consumers of the steel industry

were severely effected . It is estimated that during the second half of the year , the steel

demand declined by around 20% globally over the same period last year.

The steel industry has traditionally been very sensitive to the changing economic

conditions.The recent economic meltdown has created several challenges- which when

addressed appropriately , can be countered to positive effect. However, unlike the

previous global recessions, this time around , all the countries have come together and

taken action.

Additionally, there has been a tremendous amount of governmental response to the global

depression which is helping to bring about a possible easing of the situation.

The economic crisis has led to the cancellation or review of many planned

investments in capacity expansions in the steel industry.However, since many

expansion projects continue to advance in some emerging economies, world steel

making capacity is expected to maintain an upward trend in 2010

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This imbalance between capacity and demand is likely to hasten retirement of

inefficient , more environmentally polluting or high cost capacities in certain

countries, further effecting industry employment.

Massive job cuts in USA, UK, Japan by major companies.

Adverse impact on exports & deffered capital expenditure

Slowing down of industrial output and corporate profits, finally

resulting into lower GDP rate.

Rise in Non- Performing loans that made the banks cautious in funding.

Much more stressful environment for employees

Loss of individual consumers confidence and spending has come to a halt.

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OBJECTIVE 2

CRITICAL EXAMINATION OF

PERFORMNACE OF COMPANIES

BEFORE AND AFTER M&A

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TATA STEEL CORUS

ON ,JANUARY 31,2007 TATA ANNOUNCED THE ACQUISITION OF CORUS

OBJECTIVE 2 To compare the performance of companies before and after M&A

YEAR ENDING 31ST MARCH TOTAL INCOME (in crores)

2006 15,470.26

2007 17,984.76

2008 20,028.28

2009 24,624.04

TOTAL INCOME

24,624.04

200920028.28

200817984.76

200715470.26

2006

0

5000

10000

15000

20000

25000

30000

1 2 3 4

YEAR

INCOME

Interpretation:

On the basis of above table & graph it can be interpreted that the total income of

the Tatasteel has been continuously increasing after the acquisition of Corus by

Tata

COMPARISON OF TOTAL ASSETS:

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YEAR ENDING 31ST MARCH TOTAL ASSETS (in crores)

2006 14,617.16

2007 25,597.50

2008 47,075.52

2009 58,741.77

TOTAL ASSETS

58741.77

200947,075.52

2008

25597.5

200714617.16

2006

0

10000

20000

30000

40000

50000

60000

70000

1 2 3 4

YEAR

TOTALASSETS

Interpretation:

On the basis of above table & graph it can be interpreted that the total assets of the

Tatasteel has been continuously increasing after the acquisition of Corus by Tata

COMPARISON OF NET SALES / INCOME FROM OPERATIONS:

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YEAR ENDING 31ST MARCH NET SALES/ INCOME FROM

OPERATIONS (in crores)

2006 3637.46

2007 5118.10

2008 6254.20

2009 17397.22

NET SALES/INCOME FROM OPERATIONS

7397.22

20096254.2

20085118.1

20073637.46

2006

0

1000

2000

3000

4000

5000

6000

7000

8000

1 2 3 4

YEAR

NETSALES

Interpretation:

On the basis of above table & graph it can be interpreted that the NET SALES of

the Tatasteel has been continuously increasing after the acquisition of Corus by

Tata

COMPARISON OF PROFIT BEFORE TAXES:

YEAR ENDING 31ST MARCH PROFIT BEFORE TAXES (in crores)

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2006 5239.96

2007 6261.65

2008 7066.36

2009 7315.61

PROFIT BEFORE TAXES

7315.61, 29%

2009

7,066.36, 27%

2008

6261.65, 24%

2007

5239.96, 20%

2006

Interpretation:

On the basis of above table & graph it can be interpreted that the PROFIT

BEFORE TAXES of the Tatasteel has been continuously increasing after the

acquisition of Corus by Tata

COMPARISON OF EARNING PER SHARE;

YEAR ENDING 31ST MARCH EARNING PER SHARE

2006 63.65

2007 73.76

2008 61.63

2009 61.78

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EARNING PER SHARE

61.78, 24%

2009

61.63, 24%

2008 73.76, 28%

2007

63.65, 24%

2006

Interpretation:

On the basis of above table & graph it can be interpreted that the EARNING PER

SHARE of the Tatasteel has been continuously increasing after the acquisition of

Corus by Tata

ARCELOR MITTAL

ON JUNE 25,2006 MERGER OF ARCELOR & MITTAL WAS ANNOUNCED

COMPARISON OF TOTAL ASSETS:

YEAR ENDING DECEMBER,31 TOTAL ASSETS (in million $)

2006 116,784

2007 133,625

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2008 133,088

2009 127,697

TOTAL ASSETS

127,697

2009

133,088

2008

133,6252007

116,784

2006

105000

110000

115000

120000

125000

130000

135000

1 2 3 4

YEARS

AMOUNTIN

$

Interpretation:

On the basis of above table and graph it can be said that the total assets of the firm

has increased as compared prior to merger. There has been both rise and decline in

the level of assets held by the firm over he period of four years.

COMPARISON OF SALES:

YEAR ENDING DECEMBER,31 SALES (in million $)

2006 23,203

2007 105,2162008 124,936

2009 65,110

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SALES

65110

2009

124,936

2008105216

2007

23203

2006

0

20000

40000

60000

80000

100000

120000

140000

1 2 3 4

Interpretation:

On the basis of above table and graph it can be said that the sales of the firm has

shown variations since 2006 till 2008 the sales were continuously increasing but in

2009 there has been some decline in sales due to global crisis.

COMPARISON OF NET INCOME:

YEAR ENDING DECEMBER,31 NET INCOME (in million $)

2006 1,917

2007 11,850

2008 10,439

2009 118

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NET INCOME

118$

2009

10,439$

2008

11,850$

2007

1,917$

2006

0 2000 4000 6000 8000 10000 12000 14

1

2

3

4

AMOUNTIN$

YEARS

Interpretation:

On the basis of above table and graph it can be said that the net income of the firm

has increased in 2007 to a large extent as compared to 2007 . However, the net

income declined in 2008 & 2009 due to decline in sales .

COMPARISON OF EARNIING PER SHARE:

YEAR ENDING DECEMBER,31 EARNING PER SHARE(In Million $)

2006 1.38

2007 2.45

2008 6.78

2009 0.08

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EARNING PER SHARE

0.08

2009

6.78

2008

2.45

2007

1.382006

Interpretation:

On the basis of above table and graph it can be said that the earning per share of

the firm has increased substantially till 2008 but after 2008 in 2009 the eanings

reduced to 0.08 due to global crisis.

COMPARISON OF DIVIDEND PAY:

YEAR ENDING DECEMBER,31 DIVIDEND PAY (in million $)

2006 210

2007 (2269)2008 (2576)

2009 (1,338)

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DIVIDEND PAY

210,

2006-1,338,2009

-2,576,

2008

-2269,

2007

Interpretation:

On the basis of above table and graph it can be said that the dividend pay of the

firm has reduced to a large extent as compared prior to merger.

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OBJECTIVE -3

REASONS FOR ACQUISITION

REASONS FOR MERGER & ACQUISITIONS

CORPORATE GREED:

THE DESIRE FOR MORE RATHER THAN LESS IS AN INTEGRAL PART OF

HUMAN

Similar is the case here:

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Mittal after merger with Arcelor the worlds largest steel producer in terms of

turnover & the second largest in terms of steel output became the largest steel

company in the world .

In 2005 Tata steel was only the worlds 56 th biggest steel producer and corus

takeover deal is the largest Indian takeover of a foreign company which creates

Tata steel fifth-largest steel group of the world.

ELIMINATE COMPEITION:

One important reason that companies combine is to eliminate competition .Acquiring a

competitor is an excellen t way to improve a firms position in the market place.It reduces

competition, and allows the acquiring firm to use the targets resources & expertise.

ECONOMIES OF SCALE:

As Corus is also very strong in research and development ,which would add to the

competitive strength for Tata steel in future on the other hand, Tata steel was recognized

as the worlds lowest-cost producer of steel .The company was also recognized as the

worlds best steel producer by World Steel Dynamics in 2005.

Thus, they can maximize their efficiency with minimizing the cost .Similarly, for Arcelor

Mittal steel also.

EXPLORE NEW MARKETS:

With the merger & acquisitions, both Tata and Mittal has become a multinational with

operations in various countries.

Arcelor is the worlds largest steel manufacturer in terms of turnover and corus being the

second largest steel maker in Europe ,provide Tata and Mittal steel access to largest steel

buyers of world.

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RESOURCE TRANSFER:

Resources are unevenly distributed across firms and the interaction of target and

acquiring firm resources can create value through either overcoming information

asymmetry or by combining scarce resources.

SYNERGY:

Synergy, a term made popular in 1960s , states that there are efficiencies gained in all

the things you do because you do more than one thing .The related catch phrase of the

time was two plus two equals five . This refers to the fact that the combined company can

often reduce duplicate departments or operations , lowering the costs of the company

relative to the same revenue stream , thus increasing profit.

CORPORATE TAX SAVINGS:

Although tax savings may not be the primary motivation fr a combination , it can sweeten

the deal. When a purchase of either the assets or common stock of a company takes place,

the tender offer less the stocks purchase price represents a gain to the target companys

shareholders .Consequently, the target firms shareholders will usually experience a

taxable gain .However, the acquiring company may reap tax savings depending on the

market value of the target companys assets when compared to the purchase price .The

acquiring company can write up the target companys assets .This difference can then be

charged off to depreciation with resultant tax savings .depending on the method of

corporate combination, further tax savings may accrue to the owners of the target

company.

ADD TO PRODUCTION CAPACITY:

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With the acquisition Corus by Tata , the combined entity of Tata-Corus would have a

capacity of 40 million tonnes by 2011-12.Overseas acquisitions have already added upto

21.4 million tonne to Tata capacity, which include Corus production at 18.2 million tonne

.Similarly, Arceor-Mittal in its current form ,expected to have a planned capacity of 120

million tonnes in coming future.

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OBJECTIVE -4

ISSUES IN MERGER & ACQUISITION

ISSUES RELATED TO MERGER AND ACQUISITION.

In any merger or acquisition planning you need to understand what you are getting into

(do I go ahead? Adjust the price? Walk away?). This is your one shot to understand the

business before you close the deal. You also want to reduce any post-acquisition surprises

(what will we need to work on after acquisition, integration issues, personal issues,

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obsolete equipment requiring replacement, warranty exposures, major contracts and

customer base).

An important key to remember is Its not only the numbers!!

Critical Issues

In any merger and acquisition you need to focus on:

Financial issues (what is the potential exposure, understanding what you are

buying).

The control environment ( understand weaknesses and how this may impact

future operations , what are the risks?).

Additionally, a focus needs to be placed upon financial and operational

integration concerns ( will major restructuring and integration be required, how

difficult will it be to integrate new acquisition into our business?).

Information system issues can be key areas of concern (compatible systems,

major integration costs after acquisition , old equipment).

Marketing issues ( will customers stay? What will it take to support customers?).

Legal ( any pending suits and exposures)

Business processes (do good processes exist? Any integration concerns?).

Human resource issues ( combining different corporate cultures , handling

downsizing o combined organizations and the potential of loosing key personnel ,

differing benefit plans etc.)

Also there are any anti-trust regulatory/ tax issues requiring analysis?

Factors that may not be very crucial in domestic M&As become critical in international

merger and acquisition like in the case o Tata and Corus ,Arcelor-Mittal who face various

adventures in merger/ acquisition.

These constraints are:

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According to the current RBI regulations, companies cannot bid for an overseas

acquisition under the automatic route , if the total funds required for the acquisition

exceed 200 per cent of the Indian companys net worth. There are several other aspects

which need to be looked at to determine if the proposed acquisition falls within the 200

per cent limit.

Also, according to the Indian Companies Act , if the acquisition value exceeds 60 per

cent of the Indian companies net worth or 100 per cent of its free reserves , and then the

Indian company is required to make prior approval from its shareholders for making the

investment in the target company. It means disclosing vital details about the target

company to the shareholders , including the price being paid. This results in certain

sensitive and confidential information, which would be of critical importance to

competing bidders becoming available in the public domain even prior to submitting a

bid to the target company.

Due diligence is a critical factor in M&As . Due diligence , with reference to M&As is

the process of examining all aspects of a company including manufacturing, financial,

legal, tax, IT systems , labour issues , checking for regulatory issues , as well as

understanding issues related to IPR , the environment and other factors.It is done to

investigate and evaluate a potential company for acquisition purposes. It helps the

acquiring company to determine whether it is worth pursuing a target and at what price.

Legal due diligence covers contractual documentation, litigation,ownership of movable,

fixed and intangible assets like IPR, etc.

Deciding acquisition price: the value or amount is finally decided only after the due

diligence exercise is completed and the valuer has considered how the findings impact

the valuation. If the target company has a presence in several countries, the exercise

becomes even more difficult. One needs to rely on local lawyers and tax experts in each

of the different geographies to get the flavor of local regulatory and tax issues and then

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factor them into the valuation exercise as well as in the contractual documentation to

protect ones interests.

Another major challenge is the varying accounting standards adopted by different

countries for accounting treatment of different items .This poses a very significant

challenge in ascertaining the true value of the target company. The most crucial aspect in

any overseas acquisition is the structuring of the deal and the vehicle used for funding

.This is generally dictated by Double Taxation Avoidance Treaties (DTAs) between

various countries.

Government Regulatory Approvals, every cross-border M&A transaction requires

regulatory approvals not only in India but also overseas where the target company is

located. In India, post 1991, monopoly legislation was scrapped when the entire chapter 3

of the MRTP Act was established. But in the west, a paramount consideration is whether

the proposed acquisition would lead to market dominance by the acquirer.

Challenges related to post merger & acquisition , Surveys have shown that more than

90 percent of international M&As have been failures. There are classic examples of large

companies having failed due to the wrong M&A strategy and profitable companies

having got into rough weather because they acquired a wrong company.

The real challenge, after an acquisition ,is the integration of the two companies . That is

why the Tata group gives so much emphasis to integration. There is a focus on aligning

the acquired companys processes with the Groups through the business excellence

model and the adherence to the Tata code of conduct.Successful integration is an intrinsic

part of the Tata Groups M&A strategy.

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FINDINGS

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FINDINGS

Tata steels acquisition of Corus and Areclor Mittal are the major and successful

stories in international market. As per my objective following indings are given:

OBJECTIVE: To critically examine the performance of companies before and after

M&A

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TATA & CORUS

Findigs are based on the results for the four financial years ending on MARCH,31

1 Total Income : total income has been continuously increasing . It has increased by 11%

for the year ending march 31, 2009 since march 31,2006

2. Total Assets : total assets of the company have shown an increase of 30% from March

31, 2006 to March 31, 2009.

3. Net sales / Income from operations : net sales of the company have shown an

increase of 17 % from March 31, 2006 upto March 31, 2009

4.Profit before taxes :profit before taxes of the company have shown an increase of 9%

from March 31, 2006 to March 31, 2009

5. Earning per share : earning per share of the company increased from 24% in 2006 to

28% in 2007 thereafter it has remained constant at 24% uptill March 31,2009.

Tata steel industry after acquiring the Corus have shown positive results on

its performance and through this acquisition it became the fifth largestindustry in the world

ARCELOR MITTAL

Findigs are based on the results for the four financial years ending on December,31

1. Total assets: total assets of the company has been continuously increasing since

the acquisition of Arcelor by Mittal. It has increased by 2% since December

31,2006 till December 31, 2009.

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2. Sales : the sales of the company has been continuously increasing since

2006.However, the increase in sales in 2007 & 2008 is more as compared to 2009

due to global crunch.

3. Net Income : net income of the company has shown significant growth since

2006 uptill 2008 but in 2009 there has been significant decline in2009 due to

decline in sales as a result of global crunch..

4. Earning per share : earning per share of the company increased since 2006 upto

2008 but in 2009 there has been a significant fall of 62%

5. Dividend Pay ; the dividend pay of the company has gone in negative after 2006.

Similarly , Arcelor Mittal merger has helped in improving their performance

and in becoming the largest steel producer in the world

OBJECTIVE TO STUDY VARIOUS ISSUES INVOLVED IN MERGER &

ACQUISITION.

Before into merger & acquisition , all issues effecting the deal must be analyzed There

should be no undisclosed issues both on the part of target firm and acquirer,

OBJECTIVE : TO EVALUATE THE STRATEGIC REASONS BEHIND M&A

DECISIONS.

The urge behind the M&A of Tata and Corus , Arcelor-Mittal is ofgrowth and

expansion worldwide

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LIMITATIONS

LIMITATIONS OF THE STUDY

The study is based on only secondary data due to lack of resources to collect data

from primary sources.

Scope is limited to two companies only:

Tata and Corus

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Arcelor & Mittal

Time constraints because this research involves in depth study of each and every

aspect of deal that has taken place.

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SUGGESTIONS

SUGGESTIONS

While evaluating the merger/ acquisition proposal all the critical issues

discussed above must be kept in mind

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The step for M&A should be opting not to just increase the size of operation

of company but it must create value for customers.

There should not be over valuation of the firm otherwise you will be the

unfortunate winner not the fortunate one.

Companies should try to focus on building proper relationships with the

targeted firm so that there is no loss of key employee

Companies must define their objective in quantified terms to enter into

M&A deal , means your objective should not be subjective one.

BIBLIOGRAPHY

BOOKS:

Chandra prassana , financial management , by Tata Mc Graw Hill (2008)

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Jain.P.K and Khan.M.Y , financial management , by Tata Mc Graw Hill

(2007)

Cooper Donald.R and Schindler Pamela , Business Research methods , by

Tata Mc Graw Hill.

MAGAZINES , JOURNALS AND NEWSPAPERS:

Dash Ashutosh , Value Creation through Mergers: Myth & Reality , ICFAI

Journal of Applied Finance , vol 10.no. 10 October 2004 , pp 20-33.

P.suresh and Prof.r.padmanabhaman (2007) , MERGERS &

ACQUISITIONS , ITM n-Ach, vol.1 No.2 December, page 16-22

Adhikari , Anand (2006) ON TOP OF THE WORLD, Business Today

December 3, page 97

Schweiger David.M, a framework for Executives and Managers, ICFAI

Journal of Applied Finance, vol.9.no.2, March 2003, pp 71-79.

SITES:

www.tatasteel.com

www.arcelormittal.com

www.corusgroup.com

www.managemantparadise.com

www.envestindia.com

www.sebi.gov.in

www.arcelor.com

www.icfai.com

www.moneycontrol.com

www.equitymaster.com

www.answers.com

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http://www.tatasteel.com/http://www.arcelormittal.com/http://www.corusgroup.com/http://www.managemantparadise.com/http://www.envestindia.com/http://www.sebi.gov.in/http://www.arcelor.com/http://www.icfai.com/http://www.moneycontrol.com/http://www.equitymaster.com/http://www.answers.com/http://www.tatasteel.com/http://www.arcelormittal.com/http://www.corusgroup.com/http://www.managemantparadise.com/http://www.envestindia.com/http://www.sebi.gov.in/http://www.arcelor.com/http://www.icfai.com/http://www.moneycontrol.com/http://www.equitymaster.com/http://www.answers.com/


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