Vipin Project 4 Sem

8/6/2019 Vipin Project 4 Sem

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A PROJECT REPORT

On

“EFFECT OF MERGER & ACQUISITION IN CAPITAL

APPRECIATION IN INDIAN ECONOMY”

TOWARDS THE PARTIAL FULFILLMENT FOR THE DEGREE OF MASTER OF

BUSINESS ADMINSTRATION (MBA)

(Affiliated to G.G.S.I.P University, New Delhi)

GUIDED BY: - SUBMITTED BY :-

SHILKI BHATIA VIPIN KUMAR

Lecturer and Placement Advisor (10212303909)

SESSION 2009-11

DELHI INSTITUTE OF ADVANCED STUDIES

(SECTOR-25, ROHINI, NEW DELHI - 110085)



ABSTRACT

The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate

finance and management dealing with the buying, selling and combining of differentcompanies that can aid, finance, or help a growing company in a given industry grow

rapidly without having to create another business entity.

A merger is a tool used by companies for the purpose of expanding their operations often

aiming at an increase of their long term profitability. There are 15 different types of

actions that a company can take when deciding to move forward using M&A. Usually

mergers occur in a mutual setting where executives from the target company help those

from the purchaser in a due diligence process to ensure that the deal is beneficial to both

parties.

An acquisition, also known as a takeover, is the buying of one company by another. An

acquisition may be friendly or hostile. In the former case, the companies cooperate in

negotiations in the latter case the takeover target is unwilling to be bought or the target's

board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a

smaller firm by a larger one. Sometimes, however, a smaller firm will acquire

management control of a larger or longer established company and keep its name for the

combined entity. This is known as a reverse takeover .

For this project ,m&a is really helpful in regards to capital appreciation of Indian

economy or not so that I have to mention in this project .So for that I have usedsecondary research which I got it from various wesites,books and newspapers.

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Due_diligence

http://en.wikipedia.org/wiki/Takeover#Friendly_and_hostile_takeovers

http://en.wikipedia.org/wiki/Reverse_takeover

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Due_diligence

http://en.wikipedia.org/wiki/Takeover#Friendly_and_hostile_takeovers

http://en.wikipedia.org/wiki/Reverse_takeover



INDEX

Sl. No Particulars Page no.

1 Objective of the Study 5

2 Research Methodology 6

3 Introduction to Merger & Acquisition 9

4 M&A laws in Indian Prospective 14

5 M&A laws in Global prospective 15

6 M&A trends in India 16

7 M&A trends across the Globe 22

8 Effects of M&A in Capital Appreciation in Indian Economy 25

9 Mixed activity 14

10 M & A in Telecom Sector 27

11 M &A in Finance Sector 29

12 M &A in Oil and Gas Sector 30

13 M & A in Banking Sector 32

14 M & A in Pharmaceutical Sector 35

15 Literature Review 38

16 Arcellor and Mittal deal 47

17 Reasons for Failure M&A 50

.18 Analysis and Interpretation of M & A 57

19 Recommendation 65

20 Limitations 66

21 Conclusion 67

22 Bibliography 69

EXECUTIVE SUMMARY



This study aims at giving in detail information about evolution of Merger & acquisition

in India and their effect on capital appreciation

The increasing economic power of emerging economies has led to a dramatic expansionin multinationals from these markets. Mergers and acquisitions (M&A) have become a

popular vehicle for these companies to rapidly access new markets, assets and

capabilities.

More than 1,100 mergers and acquisitions were conducted by emerging market

multinationals in 2006, representing US$128 billion in value1. Indian companies have

significantly increased their M&A activity over recent years, particularly in terms of

cross-border acquisitions. The value of deals conducted by Indian companies grew at a

compound annual growth rate of 28.3 percent over 2000-2007 to reach US$30.4 billion

in 2007, of which US$22 .6 billion represented cross-border transactions.

Indian M&A transactions are primarily driven by the desire for growth. Indian companiesare leveraging their low-cost advantage to create efficient global business models; theyare seeking entry into fast-growing emerging markets and market-share in profitabledeveloped economies; they are looking to augment their knowledge, reach andcapabilities through acquisitions of companies for their brands, technology, and talentand product portfolios. Moreover, the competition to achieve these benefits is intense,heightening the need for speed. Companies from Latin America, Eastern Europe, Africa,and Middle East and across Asia are in a race to build their global businesses. ManyIndian companies are conducting multiple M&A deals, building a series of stakes indifferent businesses and often a variety of industries. This “string of- pearls” approachallows them to rapidly expand their growth opportunities and extend their geographicalfootprint. Indian companies are also bringing a longer-term and more collaborative perspective to M&A.

OBJECTIVE:-



To get broad view of effect of Merger & Acquisition on capital appreciation in

India.

Acquire the in-depth knowledge about the Merger and Acquisition in india.

Understand the need for growth through acquisitions in foreign countries.

Critically examine the rationale behind the acquisition of Arcellor- Mittal Deal.

Study the regulations governing mergers & acquisitions in the case of a cross- border acquisition.



RESEARCH METHODOLOGY:

Data collection:

As it is a secondary research, all the data is selected after rigorous analysis of articles

from newspapers, magazines and internet.

All the research collected is done by professional analyst across the world and is

compiled in this project to understand the financial and business impact of merger and

acquisition more effectively.

Tools for the data representation:

Charts (pie) and graphs (cone and bar) are used to portray the data for the analysis.

Time span of the study:

The data was collected for all the inbound and outbound deals happened from

2001 to 2010



INTRODUCTION OF OF MERGERS & ACQUISITIONS

The expression mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, sellingand combining of different companies that can support, finance, or help a growing

company in a given industry grow rapidly without having to create another businessentity.

MERGER :

In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly chosen and involve stock swap or cash payment tothe target. Stock swap is often used as it allows the shareholders of the two companies toshare the risk involved in the deal. A merger can look like a takeover but result in a new

company name (a lot combining the names of the original companies) and in new branding, in some cases, term the combination a "merger" rather than an acquisition isdone purely for political or marketing reasons.

TYPES OF MERGER:

Horizontal merger:

Two companies that are in direct competition and share the same product linesand markets i.e. it results in the consolidation of firms that are direct rivals. E.g.Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls Royce andLamborghini.

Vertical merger:A customer and company or a supplier and company i.e. merger of firms that haveactual or potential buyer-seller relationship e.g. Ford- Bendix, Time Warner-TBS.

Conglomerate merger:

Generally a merger between companies which do not have any common businessareas or no common relationship of any kind. Consolidated firma may sell related products or share marketing and distribution channels or production processes.Such kind of merger may be broadly classified into following:

Product-extension merger: Conglomerate mergers which involvecompanies selling different but related products in the same marketor sell non-competing products and use same marketing channelsof production process. E.g. Phillip Morris-Kraft, PepsiCo- PizzaHut, Proctor and Gamble and Clorox

Market-extension merger: Conglomerate mergers whereincompanies that sell the same products in different markets/



geographic markets. E.g. Morrison supermarkets and Safeway,Time Warner-TCI.

Pure Conglomerate merger: Two companies which merge haveno obvious relationship of any kind. E.g.BankCorp of America-

Hughes Electronics.

On a general analysis, it can be concluded that Horizontal mergers eliminate sellers andhence reshape the market structure i.e. they have direct impact on seller concentrationwhereas vertical and conglomerate mergers do not affect market structures e.g. the seller concentration directly.

ACQUISITION:

An acquisition, also known as a takeover, is the buying of one company (the ‘target’) byanother. An acquisition may be friendly or hostile. In the other way, the companies assist

in negotiations; in the latter case, the takeover target is unwilling to be bought or thetarget board has no prior knowledge of the offer. Acquisition usually refers to a purchaseof a smaller firm by a larger one. Sometimes, however, a smaller firm will acquiremanagement control of a larger or longer established company and keep its name for thecombined entity. This is known as a reverse takeover.

TYPES OF ACQUISITION

The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective controlover the assets of the company, but since the company is acquired intact as a

going business, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in itscommercial environment.

The buyer buys the assets of the target company. The cash the target receivesfrom the sell-off is paid back to its shareholders by dividend or throughliquidation. This type of transaction leaves the target company as an empty shell,if the buyer buys out the entire assets. A buyer often structures the transaction asan asset purchase to "cherry-pick" the assets that it wants and leave out the assetsand liabilities that it does not. This can be particularly important whereforeseeable liabilities may include future, unquantified damage awards such asthose that could arise from litigation over defective products, employee benefits

or terminations, or environmental damage. A disadvantage of this structure is thetax that many jurisdictions, particularly outside the United States, impose ontransfers of the individual assets, whereas stock transactions can frequently bestructured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.



DIFFERENCES BETWEEN MERGERS & ACQUISITION

Although they are often spoken in the same breath and used as though they wereidentical, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly establishes itself as the new owner,the purchase is called an acquisition. From a legal point of view, the target companyceases to exist, the buyer "swallows" the business and the buyer's stock continues to betraded.

A merger happens when two firms, often of about the same size, agree to go forward as asingle new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". Both companies' stocks are

surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company,DaimlerChrysler, was created.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is cold - that is, whenthe target company does not want to be purchased - it is always regarded as anacquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether

the purchase is friendly or hostile and how it is announced. In other words, the realdifference lies in how the purchase is communicated to and received by the targetcompany's board of directors, employees and shareholders.



WHY COMPANIES GO FOR MERGER & ACQUISITION

Geographical Expansion & Acquire New Customers:

By this way one can easily expand their business with the help of eachcompany for E.g. Hindalco has good coverage and Novelis has spread inUSA and UK.

Increased Market Share:

This assumes that the buyer will be fascinating a major competitor andthus increase its market power to set prices.

Synergies & Improve Skill sets:

This refers to the fact that the combined company can often reduce itsfixed costs by removing duplicate departments or operations, lowering thecosts of the company relative to the same revenue stream, thus increasing

profit margins and can improve skills of exist employees by exchanging program.

Cross selling:

For example, some retailers buying one company’s FMCG product so thatretailer will also sell its products to customers and that FMCG companycould then sell that retailers products to their customers, Or a manufacturer can acquire and sell complementary products.

Taxes:

A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability

Economies of Scale:

For example, managerial economies such as the increased opportunity of managerial area. Another example is purchasing economies due toincreased order size and associated bulk-buying discounts.

Resource transfer:

Resources are unequally distributed across firms and the communicationof target and acquiring firm resources can create value through either overcoming information irregularity or by combining inadequateresources.

Diversification:

While this may hedge a company against a downturn in an individualindustry it fails to deliver value, since it is possible for individualshareholders to achieve the same hedge by diversifying their portfolios ata much lower cost than those associated with a merger.

Vertical integration:



Vertical Integration occurs when an upstream and downstream firmmerges. There are several reasons for this to occur. One reason is when both the upstream and downstream firms have monopoly power; each firmreduces output from the competitive level to the monopoly level, creatingtwo burden losses. By merging the vertically integrated firm can collect

one loss by setting the upstream firm's output to the competitive level.This increases profits and consumer surplus. A merger that creates avertically integrated firm can be profitable.



MERGER & ACQUISITION LAWS IN INDIA

Mergers and Acquisitions in India are governed by the Indian Companies Act, 1956,more particularly Sections 391 to 394. This Act consolidates provisions pertaining tomergers and acquisitions and other related issues of compromise, arrangements and

reconstruction. Though mergers and acquisition may be initiated through agreements between the parties, the process remains largely court driven as the sanction of theconcerned High Court is required for bringing such a merger/acquisition into effect.

Under the existing law in India, the scheme for merger and/ or acquisition or any sucharrangement should be approved by a majority in number representing not less than 3/4thin value of shareholders/creditors present and voting during the General Body Meetingsof the companies concerned. However, different courts in India follow different procedures of holding meetings of the creditors and shareholders or dispensing with therequirement of such meetings.

The Government has a role to play in this process and it acts through an OfficialLiquidator (OL) or the Regional Director of the Ministry of Company Affairs. After hearing all the concerned parties including shareholders, the concerned High Courtapproves Acquisition and Merger proposals.

Indian competition law grants a maximum time period of 210 days for the determinationof the combination, which comprises acquisitions, mergers, amalgamations and the like.One needs to take note of the fact that this stated time frame is clearly distinct from theminimum compulsory wait period for applicants. As per the law, the compulsory period

of waiting for applicants can either be 210 days starting from the day of notice filing or receipt of the Commission's order, whichever occurs earlier. The threshold limits for firms entering business combinations are substantially high under the Indian law. Thethreshold limits are set either in terms of the asset value or in terms the firm's turnover.Indian threshold limits are greater than those for the EU. They are twice as high whencompared with UK. The Indian law also provides for the modern day phenomenon of merger and acquisitions, which are cross border in nature.

As per the law domestic nexus is a pre-requisite for notification on this type of combinations. It can be noted that Competition Act, 2002 has undergone a recent

amendment. This has replaced the voluntary notification regime with a mandatoryregime. Of the total number of 106 countries, which possess competition laws only 9 arethought to be credited with a voluntary notification regime.

Voluntary notification regimes are generally associated with business uncertainties.Post-combination, if firms are seen to be involved in anti-competitive practices de-merger shows the way out.



MERGER & ACQUISITION TREND IN INDIA

Until now a couple of years back, the news that Indian companies having acquired byAmerican-European companies were very rare. However, this situation has taken a swiftU turn. Nowadays, news of Indian Companies acquiring a foreign business is more

common than other way round. So earlier only American or European companies wereacquiring Indian companies and that too specially IT companies but now scenario hastotally changed to Indian companies are merging or acquiring other country’s companiesin such sectors like IT, Pharmaceutical, Banking, Steel, Electronics, Energy, Oil and Gas,Automobiles, Telecom, Retail, Media, etc.

In the 1990s when the modification processes were initiated, there were speculations thatIndian companies would not be able to compete with foreign firms and the Indian firmswould be acquired by foreign firms. It did happen but only to a small level. Many Indiancompanies competed, thrived and won over foreign multinationals. And now Indian

companies are taking over foreign firms. Of course this credit goes to the IndianGovernment for liberalizing its economy. It does reflect the competitive and managerial prowess of Indian firms. Even before the liberalization of Indian economy Aditya Birlagroup extended its operation globally way back in the 1960s. But many companies startedto go global only after the liberalization of the Indian economy.

One of the notable aspects in the Indian companies’ overseas acquisitions is that the sizeof the deal is much bigger than the size of the acquiring firms. Some Indian companiesare purely known for their acquisitive growth. Bharat Forge in auto components andSubex in IT are two firms which have grown mainly through acquisitions. As a resultBharat Forge has become world’s second largest forging company and Subex, the leader in telecom fraud management business

Cheerful Indian Economy, spare cash with Indian corporate, Government policies andnewly found energy in Indian businessmen have all contributed to this new acquisitiondevelopment. Indian companies are now assertively looking at North American andEuropean markets to spread their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign markets;however, other sectors are also now growing swiftly. The increasing commitment of the

Indian companies in the world markets, and particularly in the US, is not only anindication of the middle age reached by Indian Industry but also the level of their participation in the overall globalization development.

Here, are few examples of Indian IT companies Acquiring or merging with foreigncompany and M&A activity is on the rise in the Indian IT industry with the last couple of years having seen a few large mergers and acquisitions.



LIST OF RECENT M&A IN IT INDUSTRY

COMPANY MERGED /ACQUIRED MOTIVE/BENEFITS

Polaris Merged with OrbiTech Acquired IPR of OrbiTech'srange of Orbi Banking

product suite.

Wipro Acquired Spectramind Intended at growing in theBPO space. The acquisitiongave Wipro an opportunity

to run a profitable BPO business.

Wipro Acquired global energy

practice of AmericanManagement Systems

It acquired skilled

professionals and a strongcustomer base in the area of

energy consultancy.

Wipro Acquired the R&Ddivisions of Ericsson

It acquired specializedexpertise and people in

telecom R&D.

Wipro GE Medical Systems(India)

It acquired IP from themedical systems company,

which in turn gave it a platform to expand its

offerings in the Indian andAsia Pacific healthcare IT

market.

vMoksha Challenger Systems & Xmedia

Primarily aimed atexpanding its customer

base. The company alsoleveraged on the expertise

of the companies in theBFSI space.

Mphasis Acquired China-based Navion software

Expanded its presence in theJapanese and the Chinese

markets. It also plans to useit as a redundancy centre for

its Indian operations.

Mascot Systems Acquired US-based eJivaand Hyderabad-based Aqua

Expanded in size andleveraged on technical



Regia expertise of the acquiredcompanies. Acquisitions

have helped the company inoffering multiple services

and expanding its customer

base significantly.

Tata Consultancy Services Citigroup Global Services Acquisition of Citigroup'scaptive business processoutsourcing (BPO) arm

(CGSL)

Table 1

Indian companies are going global with big bash acquisitions. Even though Indian firmshave been taking over foreign firms for about a decade, the years 2005-2007 are

unforgettable years as far as India’s acquisition spree is concerned. The first two monthsof 2007 saw India’s two biggest overseas acquisitions. Which is, 56th ranked Tata Steel’s big bang acquisition of 9th ranked Corus for about US$12 billion is the major acquisition by an Indian firm in foreign soil? The second biggest acquisition was done by AdityaBirla Group. Its flagship firm Hindalco acquired an American firm Novelis for aboutUS$6 billion. These two acquisitions clearly show India Inc.’s hunger for growth and thatthey will not hesitate to take the acquisition route to take their companies global.

Initially, Indian companies ventured abroad through export and joint ventures. TodayIndian companies want the mergers and acquisitions route to take their company global.Acquisition gives immediate access to new products, markets, technologies, distributionnetwork, manpower and well established brands. Through the acquisition of Corus, TataSteel became the world’s 5th largest steel maker overnight. It is impossible to scale uptheir operation so instantly without acquisition. Birla’s’ acquisition of Novelis, a US based firm, Dr. Reddy’s acquisition of Betapharm, Suzlon’s acquisition of Hansen andVideocon’s acquisition of color picture tube business of Thomson are some of thelandmark deals of India Inc. These deals are meant to expand their business globally asalso bring synergy to the acquired firms.



TOP TEN M&A IN INDIA

ACQUIRER

TARGET

COMPANY

COUNTRY

TARGETED INDUSTRY

DEAL

VALUE($ML)

Tata SteelCorus Group

plcUK Steel 12,000

Hindalco Novelis CanadaSteel

5,982

Videocon

Daewoo

Electronics

Corp.

Korea Electronics 729

Dr. Reddy’s

LabsBetapharm Germany Pharmaceutical 597

Suzlon Energy Hansen Group BelgiumEnergy

565

HPCL

Kenya

Petroleum

Refinery Ltd.

Kenya Oil and Gas 500

Ranbaxy Labs Terapia SA Romania

Pharmaceutical

324

Tata Steel Natsteel SingaporeSteel

293

Videocon Thomson SA FranceElectronics

290

VSNL Teleglobe CanadaTelecom

239

Table 2



GRAPHICAL DEPICTION OF INDIAN OUTBOUND

DEALS FROM 2000.

0

20

40

60

80

100

120

140

deals

US Billion



These are few examples of M&A held by Indian companies to foreign companies.But

there are many M&A held by foreign companies to Indian companies, which are also

benefiial to India and the concerned company and some of them are very big deal in

M&A.

INDIAN OUTBOUND M&A

ACQUIRER TARGET INDUSTRY

Essar Group Algoma Steel

Mahindra &Mahindra

Renault Group Automobile

Wipro Infocrossing IT Infrastructure

Reliance IndustriesLtd.

Hualon Corporation Textiles

ONGC Videsh Ltd Imperial Energy Plc Oil & Gas Table 3

INDIAN INBOUND M&A


Vodafone Hutchison Essar Telecom

Holcin Ambuja Cement Cement

Temasek Holdings,ICD, Macquaire,AIFCapital,CitiGroup,India Equity

Partner,GoldmanSachs

Bharti Infratel LTd Telecom

Matsushita Anchor Electricals Electronics Table 4

M&A WITHIN INDIA


Mahindra &Mahindra

Punjab Tractors Automotive

Jet Airways Sahara Airline Aviation

Kingfisher Airlines Deccan Aviation AviationHDFC Bank Centurion Bank of

PunjabBanking

Table 5



M&A TRENDS ACROSS THE GLOBE

The huge Merger Movement was a mainly U.S. business phenomenon that happenedfrom 1895 to 1905. During this time, small firms with little market share merged withsimilar firms to form large, powerful institutions that dominated their markets. It is

estimated that more than 1,800 of these firms disappeared into mergers, many of whichacquired large shares of the markets in which they operated. The vehicle used was so-called trust. To truly understand how large this movement was—in 1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the value was only 3% and from1998–2000 it was around 10–11% of GDP. Organizations that controlled the greatestshare of the market in 1905 saw that command break up by 1929 as smaller competitors joined forces with each other. However, there were companies that merged during thistime such as DuPont, Nabisco, US Steel, and General Electric that have been able to keeptheir dominance in their respected sectors today due to growing technological advancesof their products, patents, and brand recognition by their customers. These companiesthat merged were consistently mass producers of homogeneous goods that could use the

efficiencies of large volume production. Companies which had specific fine products,like fine writing paper, earned their profits on high margin rather than volume and took no part in huge Merger Movement.

In a study conducted in 2000 by Lehman Brothers, it was found that, on average, largeM&A deals cause the domestic currency of the target corporation to appreciate by 1%relative to the acquirer's. For every $1-billion deal, the currency of the target corporationincreased in value by 0.5%. The report found that in the period immediately after the dealis announced, there is generally a strong upward movement in the target corporation'sdomestic currency. Fifty days after the announcement, the target currency is then, on

average, 1% stronger.

The rise of globalization has exponentially increased the market for cross border M&A.In 1996 alone there were over 2000 cross border transactions worth a total of approximately $256 billion. This rapid increase has taken many M&A firms by surprise because the majority of them never had to consider acquiring the capabilities or skillsrequired to effectively handle this kind of transaction. In the past, the market's lack of significance and a more strictly national mindset prevented the vast majority of small andmid-sized companies from considering cross border intermediation as an option whichleft M&A firms inexperienced in this field. This same reason also prevented thedevelopment of any extensive academic works on the subject.

Due to the complicated nature of cross border M&A, the vast majority of cross border actions have unsuccessful results. Cross border intermediation has many more levels of complexity to it then regular intermediation seeing as corporate governance, the power of the average employee, company regulations, political factors customer expectations, andcountries' culture are all crucial factors that could spoil the transaction. However, with theweak dollar in the U.S. and soft economies in a number of countries around the world, we

http://wiki/Exchange_rate


http://wiki/Globalization


http://wiki/Globalization



are seeing more cross-border bargain hunting as top companies seek to expand their global footprint and become more agile at creating high-performing businesses andcultures across national boundaries.

Even mergers of companies with headquarters in the same country are very much of thistype. When Boeing acquires McDonnell Douglas, the two American companies mustintegrate operations in dozens of countries around the world. This is just as true for other supposedly "single country" mergers, such as the $27 billion dollar merger of Swiss drugmakers Sandoz and Ciba-Geigy (now Novartis).

Major M&A in the 1990s

Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:

Purchaser Purchased Transaction

value (in mil.USD)

Vodafone Airtouch PLC Mannesmann 183,000

Pfizerwer Warner-Lambert 90,000

Exxon Mobil 77,200

Citicorp Travelers Group 73,000

SBC Communications Ameritech Corporation 63,000

Vodafone Group AirTouch Communications 60,000

Bell Atlantic GTE 53,360

BP Amoco 53,000

Qwest Communications US WEST 48,000

Worldcom MCI Communications 42,000

Table 6

http://wiki/Mannesmann

http://wiki/Warner-Lambert

http://wiki/Exxon

http://wiki/Mobil

http://wiki/Travelers_Group

http://wiki/SBC_Communications

http://wiki/Ameritech_Corporation

http://wiki/AirTouch_Communications

http://wiki/Bell_Atlantic

http://wiki/GTE

http://wiki/BP

http://wiki/Amoco

http://wiki/US_WEST

http://wiki/MCI_Communications

http://wiki/Mannesmann

http://wiki/Warner-Lambert

http://wiki/Exxon

http://wiki/Mobil

http://wiki/Travelers_Group

http://wiki/SBC_Communications

http://wiki/Ameritech_Corporation

http://wiki/AirTouch_Communications

http://wiki/Bell_Atlantic

http://wiki/GTE

http://wiki/BP

http://wiki/Amoco

http://wiki/US_WEST

http://wiki/MCI_Communications



Major M&A from 2000 to present

Top 9 M&A deals worldwide by value (in mil. USD) since 2000

Purchaser Purchased Transactio

n value (in

mil. USD)

America Online Inc.

(AOL)

Time Warner 164,747

Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961

Royal Dutch Petroleum Co. Shell Transport & Trading Co 74,559

AT&T Inc. BellSouth Corporation 72,671

Comcast Corporation AT&T Broadband & Internet

Svcs

72,041

Sanofi-Synthelabo SA Aventis SA 60,243

Pfizer Inc. Pharmacia Corporation 59,515

JP Morgan Chase & Co Bank One Corp 58,761

Table 7

http://wiki/Time_Warner

http://wiki/Glaxo_Wellcome

http://wiki/SmithKline_Beecham

http://wiki/AT&T

http://wiki/BellSouth

http://wiki/AT&T

http://wiki/Time_Warner

http://wiki/Glaxo_Wellcome

http://wiki/SmithKline_Beecham

http://wiki/AT&T

http://wiki/BellSouth

http://wiki/AT&T



EFFECT OF M&A IN CAPITAL APPRECIATION OF

INDIAN ECONOMY

The sectors attracting investments by Corporate India include metals, pharmaceuticals,industrial goods, automotive components, beverages, cosmetics and energy inmanufacturing and mobile communications, software and financial services, with pharmaceuticals, IT and energy.

The Indian economy has been growing with a quick rapidity and has been emerging at

the top, be it IT, R&D, pharmaceutical, infrastructure, energy, consumer retail, telecom,

financial services, media, and hospitality etc. It is second fastest growing economy in the

world with GDP touching 9.3 % in the year 2007. This growth drive was supported by

the double digit growth of the services sector at 10.6% and industry at 9.7% in the first

quarter of 2006-07. Investors, big companies, industrial houses view Indian market in a

growing and proliferating phase, whereby returns on capital and the shareholder returns

are far above the ground. Both the inbound and outbound mergers and acquisitions have

increased dramatically. According to Investment bankers, Merger & Acquisition deals in

India will cross $100 billion in 2008, which is double last year’s level and quadruple of

2005.

The power sector has been the support of this year's M&A, accounting for $5 bn or 42

per cent of the deal value in the infrastructure sector. The power sector commanded 19

per cent share in the total M&A value of $26 bin this year as compared to about $4 bn

last year representing a 7.4 per cent share of the total deal value of $51 bn. Investments

by India Inc in the UK during 2007-08 created 3,846 jobs, ahead of its rival economy

China that was involved in creating only 898 jobs.

In the starting year of 2007, corporate India witnessed deals worth close to $40 billion.One of the first overseas acquisitions by an Indian company in 2007 was Mahindra &

Mahindra’s takeover of 90 percent stake in Schoneweis, a family-owned Germancompany with over 140 years of experience in forging business. The biggest news inM&A was Tata’s takeover of Corus for slightly over $10 billion. On the heels of thatdeal, Hutchison Whampoa of HNong Kong sold their controlling stake in Hutchison-

Essar to Vodafone for a whopping $11.1 billion. Bangalore-based MTR’s packagedfood division found a buyer in Orkala, a Norwegian company for $100 million. Servicecompanies have also joined the M&A diversion. The taxation practice of Mumbai-basedRSM Ambit was acquired by PricewaterhouseCoopers. There are many other bids inthe pipeline. On an average, in the last four years corporate earnings of companies inIndia have been increasing by 20-25 percent, contributing to enhanced profitability andhealthy balance sheets. For such companies, M&A are a helpful strategy to expand their



businesses and acquire global footprint.

Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased toUS$ 4.3 billion in 2005, and further crossed US$ 15 billion-mark in 2006. In fact, 2006will be remembered in India’s corporate history as a year when Indian companiescovered a lot of new ground. They went shopping across the globe and acquired a number

of strategically important companies. This comprised 60 per cent of the total mergers andacquisitions activity in India in 2006. And almost 99 per cent of acquisitions were madewith cash payments.

The total M&A deals for the period January-February 2007 have been 102 with a

value of US$ 36.8 billion. Of these, the total outbound cross border deals have been 40with a value of US$ 21 billion. There were 111 M&A deals with a total value of aboutUS$ 6.12 billion in March - April 2007. Of these, the number of outbound cross border deals was 32 with a value of US$ 3.41 billion. There were 74 M&A deals with a totalvalue of about US$ 4.37 billion in May 2007. Of these, the number of outbound cross

border deals was 30 with a value of US$ 3.79 billion.

The total M&A deals for the year during January-May 2007 have been 287 with a

value of US$ 47.37 billion. Of these, the total outbound cross border deals have

been 102 with a value of US$ 28.19 billion , representing 59.5 per cent of the totalM&A activity in India.

Unlike in the past when growth was led by a few sectors, 2007 has seen a more broadly based activity. The telecom sector overtook the IT Industry and dominated the M&Ascene with a 33 per cent share in the total deal value. It was followed by finance with a 15

per cent share, cement and building material 7 per cent, oil and gas 5 per cent and metals5 per cent. One of the emerging sectors for this year has been aviation, shipping andlogistics accounting for 4 per cent of total deal value.



33%

15%

7%6%

5%

4%

4%

4%

3%

19%

Telecom

Finance

Cement

Metals

Oil & Gas

Engineering

Media

Shipping, Aviation &Logistics

Figure 1

Telecom

23 deals, totaling $13 billion

The largest deal of the sector was Vodafone acquiring a 67 per cent stake in HutchisonEssar, now Vodafone Essar, India’s fourth largest telecom player. With more than fivecontenders, including India’s Reliance Infocomm, Egypt’s Orascom and Malaysia’sMaxis amongst others, the deal finally concluded in March 2007 after a three month long battle. Vodafone paid $10.9 billion for the stake. It also paid a further $415 million toEssar Group to secure management control of the company.

With company’s profits from customers being squeezed by stiff competition, sellingstakes in their telecom tower businesses or sharing towers became an appealing avenuefor mobile telecom companies. The second largest deal of the telecom sector was the sale

by Bharti of a 9 per cent stake in Bharti Infratel for $1 billion.

Other companies that sold stakes in their tower businesses included Reliance TelecomInfrastructure and Aster Infrastructure. Recently Bharti Infratel, Vodafone Essar and IdeaCellular merged their tower businesses to form a new entity Indu Tower Ltd.



Significant Mergers and Acquisitions in Telecom Sector

Following are the important mergers and acquisitions that took place in the

telecommunications sector:

The takeover of Mobilink Telecom by Broadcom. This can also be described as

a suitable example of product extension merger

AT&T Inc. taking over BellSouth

The acquisition of Scription Inc. by Nuance Communications Inc.

The taking over of Hutchison Essar by the Vodafone Group. Now it has become

Vodafone Essar Limited

China Communications Services Corporation Ltd. taking over China

International Telecommunication Construction Corporation

The acquisition of Ameritech Corporation by SBC (Southwestern Bell

Corporation) Communications

The merger of GTE (General Telephone and Electronics) with Bell Atlantic

The acquisition of US West by Qwest Communications

The merger of MCI Communications Corporation with WorldCom

Following are the benefits provided by the mergers and acquisitions in

the telecommunications industry:

Building of infrastructure in a more convenient way

Licensing options for mergers and acquisitions are often found to be easier

Mergers and acquisitions offer extensive networking advantages

Brand value

Bigger client base

Wide array of products and services



Finance


The Indian financial services sector continued to attract overseas and domestic

investments, taking 15 per cent of the total deal flow by value and 19 per cent by number.The share of PE deals was over 65 per cent. The largest deals in the sector were the $646million investment in ICICI Financial Services and the $644 million investment in HDFCLtd.

The separation of several foreign partners from their Indian joint ventures in a pursuit togo solo. Morgan Stanley acquired JM Morgan Stanley’s securities business for $480million while JM Financial retained the investment banking business for Rs 900 million$22 million. Similarly, ASK Investment Financial Consultants bought 50 per cent stakein ASK Raymond James Securities India Pvt. Ltd. from its foreign partner, Raymond

James.

The securities broking segment was the largest recipient of the investment with a 26 per cent share. Among the bigger deals were Citigroup Venture Capital’s acquisitions of 75 per cent in Sharekhan for $170 million followed by Orient Global Tamarind Fundacquiring a 6.5 per cent stake in India Infoline for $135 million and ICICI Venture andBaring together acquiring 32 per cent stake in Karvy Stock Broking for $122 million.

The second largest segment to attract investors was the stock exchanges, accounting for a21 per cent share, with National Stock Exchange and Bombay Stock Exchange attracting

investments worth $608 million and $576 million respectively from various PE and tradeinvestors.

Cement and building materials


The sector made up for 7 per cent of the total deal value out, of which 87 per cent wasdriven by a single acquirer, Holcim. Holcim strengthened its position in India byincreasing its holding in Ambuja Cement from 22 per cent to 56 per cent through variousopen market transactions and an open offer for a total investment of $1.8 billion.

It also increased its stake indirectly by 12 per cent in ACC Cement for $486 million.Imerys from France acquired Ace Refractory from ICICI Ventures for $134 million.



Oil and Gas


Reliance Industries (RIL) alone accounted for 68 per cent of the total deal value with its

two deals. Mukesh Ambani, along with associates, consolidated his holding in RILthrough an issue of convertible warrants which, upon conversion, would increase hisstake to 55 per cent in the Company.

RIL enhanced its already strong position in the sector with the merger of IndianPetrochemicals Corporation (IPCL) into RIL at a deal size of $1 billion. RIL hadacquired 26 per cent in IPCL in 2002 from the government and an additional 20 per centthrough a consequent open offer. Another important transaction was by German companyLinde AG. Linde increased its holding in BOC India from 55 per cent to 74 per centthrough a preferential allotment of equity shares. It paid approximately $146 million for

the stake.

Metals

56%

23%

7%

7%4%3%

Metals

Others

Engineering

Information Technology

Oil & Gas

Pharmaceuticals & Healthcare

Figure 2

Metal Dominate Cross

Boarder Deals




The metal sector accounted for 5 per cent of the total deal values. The largest deal in thesector was Vedanta’s acquisition of a 71 per cent stake in Sesa Goa, 51 per cent fromMitsui & Co and 20 per cent through an open offer, for a total consideration of $1.4 billion. Another major transaction was the investment of $320 million by Aditya BirlaGroup companies to consolidate their position in Hindalco Industries through a preferential allotment.

Other Sectors

The media sector (4 per cent) saw 45 deals and a lot of private equity interest with thelargest deal being the investment of $259 million by Temasek investing in Inx Media, aTV broadcast company. Other deals included an investment of $166 million by South

Asia Entertainment Holdings Ltd. (a group company of Astro All Asia Networks Plc) inSun Direct TV for a 20 per cent stake and Blackstone in Ushodaya Enterprise taking a 26 per cent stake for $146 million.

Engineering had a 4 per cent share in total deal value with its largest deal being theacquisition of Anchor Electricals by the Japan-based Matsushita for $488 million. In theautomotive sector (automotives and auto components 3 per cent) Robert Bosch acquiredan additional 9 per cent stake in its subsidiary Motor Industries Co. through an openoffer, for $330 million increasing its holding to 70 per cent. Also, M&M acquired 63 per cent stake in Punjab Tractors for $340 million which increased its share in the tractors

market to 40 per cent. The aviation sector (2 per cent) saw consolidation with a few largedeals. Jet Airways took over Sahara Airline, and Kingfisher Airlines acquired asignificant stake in Deccan Aviation. Separately, the Government decided to mergeoperations of the two state owned carriers, Indian Airlines and Air India.



BANKING SECTOR

Mergers and acquisitions in banking sector have become familiar in the majority of all

the countries in the world.

A large number of international and domestic banks all over the world are engaged in

merger and acquisition activities. One of the principal objectives behind the mergers and

acquisitions in the banking sector is to reap the benefits of economies of scale. With the

help of mergers and acquisitions in the banking sector, the banks can achieve significant

growth in their operations and minimize their expenses to a considerable extent.

Another important advantage behind this kind of merger is that in this process,

competition is reduced because merger eliminates competitors from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because the

merging entities are involved in the same kind of business or commercial activities.

Sometimes, non-banking financial institutions are also merged with other banks if they

provide similar type of services.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that

size does matter and growth in size can be achieved through mergers and acquisitions

quite easily.

Growth achieved by taking assistance of the mergers and acquisitions in the banking

sector may be described as inorganic growth. Both government banks and private sector

banks are adopting policies for mergers and acquisitions. In many countries, global or

multinational banks are extending their operations through mergers and acquisitions with

the regional banks in those countries.

These mergers and acquisitions are named as cross-border mergers and acquisitions in

the banking sector or international mergers and acquisitions in the banking sector. By

doing this, global banking corporations are able to place themselves into a dominant

position in the banking sector, achieve economies of scale, as well as garner market



share. Mergers and acquisitions in the banking sector have the capacity to ensure

efficiency, profitability and synergy. They also help to form and grow shareholder value.

In some cases, financially distressed banks are also subject to takeovers or mergers in the

banking sector and this kind of merger may result in monopoly and job cuts.

Deregulation in the financial market, market liberalization, economic reforms, and a

number of other factors have played an important function behind the growth of mergers

and acquisitions in the banking sector. Nevertheless, there are many challenges that are

still to be overcome through appropriate measures. Mergers and acquisitions in banking

sector are controlled or regulated by the apex financial authority of a particular country.

For example, the mergers and acquisitions in the banking sector of India are overseen by

the Reserve Bank of India (RBI).

Change in scenario of Banking Sector

1. The first mega merger in the Indian banking sector that of the HDFC Bank with

Times Bank, has created an entity which is the largest private sector bank in the

country.

2. The merger of the city bank with Travelers Group and the merger of Bank of America

with Nation Bank have triggered the mergers and acquisition market in the banking

sector world wide.

3. Europe and Japan are also on their way to restructure their financial sector thought

merger and acquisitions. Merger will help banks with added money power, extended

geographical reach with diversified branch Network, improved product mix, and

economies of scale of operations. Merger will also help banks to reduced them

borrowing cost and to spread total risk associated with the individual banks over the

combined entity. Revenues of the combine entity are likely to shoot up due to more

effective allocation of bank funds.

4. ICICI Bank has initiated merger talks with Centurion Bank but due to difference

arising over swap ration the merger didn’t materialized. Now UTI Bank is egeing

Centurion Bank.

The proposed merger of UTI Bank and Centurion Bank will make them third largest

private banks in terms of size and market Capitalization State Bank of India has also



planned to merge seven of its associates or part of its long-term policies to regroup

and consolidate its position. Some of the Indian Financial Sector players are already

on their way for mergers to strengthen their existing base.

5. In India mergers especially of the PSBS may be subject to technology and trade union

related problem. The strong trade union may prove to be big obstacle for the PSBS

mergers. Technology of the merging banks to should complement each other NPA

management. Management of efficiency, cost reduction, tough competition from the

market players and strengthen of the capital base of the banks are some of the

problem which can be faced by the merge entities. Mergers for private sector banks

will be much smoother and easier as again that of PSBS.



PHARMACEUTICAL SECTOR

There are several causes of mergers and acquisitions in the global pharmaceutical

industry. Among them are the absence of proper research and development facilities,

gradual expiry of patents and competition within specific pharmaceutical genres. The

high profile product recalls have also played a major role in the continuing mergers and

acquisitions in the industry.

Mergers and Acquisitions in Indian Pharmaceutical Sector

In the Indian pharmaceutical market there are a number of companies that have entered

into merger and acquisition agreements in the context of the global market scenario.

These companies would be selling off the non-core business divisions like Over-the-

Counter. This is expected to further the consolidation in the mid-tier as far as

the pharmaceutical industry in Europeis concerned.

The sheer number of companies acquiring parts of other companies has

shown that the Indian pharmaceutical industry is ready to be a dominant force in this

scenario. In the recent times Nicholas Piramal has taken the ownership of 17% of

Biosyntech that is a major pharmaceutical packing organization in Canada.

Torrent has got the ownership of Heumann Pharma, a general drug making

company and, formerly, a subsidiary of Pfizer. Matrix has acquired Docpharma, a major

pharmaceutical company of Belgium.

Sun Pharmaceutical Industries is set to make acquisitions in pharmaceutical

companies in the US and has set aside $450 million to execute these plans. In Bengaluru,

Strides Arcolab has aimed at acquiring 70 percent in a pharmaceutical facility in Italy that

is worth $10 million.



Opportunities for Pharmaceutical Companies

There are a number of opportunities for the major pharmaceutical products and services

providers in the Indian pharmaceutical sector as the price controls have been relaxed and

there have been significant changes in the medicinal requirements of the Indians.

The manufacturing base in India is also strong enough to support the major international

pharmaceutical companies from the performance perspective.

This may be said as the Indian pharmaceutical market is varied as well as economical. It

is expected that in the coming years the Indian pharmaceutical companies would be

executing more mergers and acquisitions. It is expected that the regulated pharmaceutical

markets in the United States and Europe would be the main areas of operation.

In the recent years the Indian pharmaceutical companies have been venturing into

mergers and acquisitions so that they can gain access to the big names of the international

pharmaceutical scenario.

Patterns of Mergers and Acquisitions in Pharmaceutical Sector

One of the major features of the mergers and acquisitions in the pharmaceutical sector of

the Asia-Pacific region has been the integration of the local pharmaceutical companies.

This has happened especially in India and China. Acquisition has made it convenient for

a number of companies to do business in various pharmaceutical markets. Previously the

pharmaceutical markets of Europe were closed to the companies of other countries due to

the difference in language. There were also other problems for companies like the trade

barriers for instance.

Figures of Mergers and Acquisitions in Pharmaceutical Sector

As per the figures of mergers and acquisitions in pharmaceutical sector, from the year

2004, there have been more mergers and acquisitions in the pharmaceutical sector in the

Asia-Pacific region compared to North America. The combined financial value of the

mergers and acquisitions in Asia-Pacific region has been greater than North America.



One of the major merger and acquisition deals in the Asia-Pacific region in the recent

years has been the merger of Fujisawa and Yamanouchi in Japan.

This deal was worth $7.9 billion. In the same period the Asia-Pacific region has

experienced the highest percentage of growth in the mergers and acquisitions in

pharmaceutical sector. In the same period the rate of growth in the Asia-Pacific region

has been 37%. In Western Europe the rate of growth has been 11% and in North America

it has been 20%. The pharmaceutical market in Eastern Europe has not experienced any

increase in the rate of mergers and acquisitions.

Mergers and Acquisitions in Global Pharmaceutical Sector

Since the year 2004 there has been an increase in the mergers and acquisitions in the

global pharmaceutical sector. This was reflective of the increase in the mergers and

acquisitions in other industries at the same period. There was 20% increase in the number

of deals, which stood at 1,808. There were eight deals with the value of more than $1

billion. This was three more than 2003. The total financial value of the deals was $112

billion and this was an increase of 53%. However, these figures do not include the

acquisition of Aventis by Sanofi-Synthelabo that was worth $60 billion. This is the

biggest acquisition in the pharmaceutical industry after the merger of Pharmacia and

Pfizer in 2002.



LITERATURE REVIEW

ARTICLES FROM NEWSPAPER ON STEEL INDUSTRY :-

India aiming to double steel production by 2011-12

Sunday, 14 December 2008

India is aiming to more than double its steel production to 124 million tonnes by 2011-12

and further raise it to 280 million tonnes by 2020, Steel Minister Ram Vilas Paswan told

Rajya Sabha today. Replying to supplementary during Question Hour, Paswan said Indiaranked eighth in world steel production when UPA Government took office in 2004 and

has today climbed to 5th spot with 54 million tonnes of annual steel production. "Our

National Steel Policy had targeted 124 million tonnes of steel production by 2020. But

we have now brought the target forward to 2011-12 and for 2020 we are aiming to raise

production capacity to 280 million tonnes," he said. Steel Ministry, he said, was of the

view that high quality iron ore, the reserves of which in the country are very limited,

should not be exported or their export discouraged through high export duties.

The exports cannot be fully stopped as iron ore mines employ some 500,000 people and

their employment cannot be risked, he said adding export duty on iron ores has already

been levied. The global economic slowdown has seen growth in steel consumption in the

country fall to 1.75 per cent from a high of 13 per cent. Also, prices of steel products

have fallen since June. Paswan said his Ministry has been holding consultations with the

industry and recently the Government rolled back export duty on all categories of steel

items, except melting sap, to help producers tide over fall in consumption levels in the

country.



STEEL IMPORT STRENGTHEN 70% IN NOV

(Source-economic times 13th December)

India’s steel imports jumped more than 70% to 1.4 mn tonnes last month against 8 lakh

tonne in the same month a year ago. The sharp rise in imports was due to low-priced

shipments coming from China, Thailand and Ukraine into India at $450-500 per tonne,

25% cheaper than the international price, then ruling at $600-700 per tonne. The steel

ministry’s Joint Planning Committee that collects data on iron and steel on a monthly

basis shows that steel imports dipped 10.7% to 5.25 million tonnes in April-October

against 5.88 million tonnes in the corresponding period a year ago. Availability of low-

priced imports from some countries resulted in huge imports in November. This

happened when domestic steel makers were cutting production due to lower demand.

Last month, the government imposed 5% import duty on steel products to protect

domestic industry against cheap imports. But steel producers feel the move is insufficient

to bring down imports as china as withdrawn export tax on some steel products to get rid

of surplus stock. The government has also initiated investigation into dumping from

China but steel firms feel it’s a lengthy process and will take at least 8-9 months to

complete.

http://economictimes.indiatimes.com/Economy/Steel_imports_strengthen_70_in_Nov/articleshow/3831402.cms

http://economictimes.indiatimes.com/Economy/Steel_imports_strengthen_70_in_Nov/articleshow/3831402.cms



THE GLOBAL STEEL INDUSTRY:-

The current global steel industry is in its best position in comparing to last decades. The

price has been rising continuously. The demand expectations for steel products are

rapidly growing for coming years. The shares of steel industries are also in a high pace.

The steel industry is enjoying its 6th consecutive years of growth in supply and demand.

And there is many more merger and acquisitions which overall buoyed the industry and

showed some good results. The subprime crisis has lead to the recession in economy of

different Countries, which may lead to have a negative effect on whole steel industry in

coming years. However steel production and consumption will be supported by

continuous economic growth.



CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

18%

8%

3%

9%

8%4%

37%

13%

STEEL PRODUCTION

EUROPE

USA

BRAZIL

JAPAN

CLS

INDIA

CHINA

OTHERS

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. In this article, let us have a look at how has the steel industry

performed globally in 2007.

Capacity: The global crude steel production capacity has grown by around 7% to 1.6

bn in 2009 from 1.5 bn tonnes in 2008. The capacity has shown a growth rate of 7%

CAGR since 2005. The additions to capacity over last few years have ranged from 36 m

tonnes in 2006 to 108 m tonnes in 2009. Asian region accounts for more than 60% of the



total production capacity of world, backed mainly by capacity in China, Japan, India,

Russia and South Korea. These nations are among the top steel producers in the world.

Production: The global steel production stood at 1.3 bn tonnes in 2009, showing an

increase of 7.5% as compared to 2008 levels. The global steel production showed a

growth of 8% CAGR between 2005 and 2009. China accounts for around 36% of world

crude steel production followed by Japan (9%), US (7%), Russia (5%) and India (4%). In

2009, all the top five steel producing countries have showed an increase in production

except US, which showed a decline.

Rank Country Production (mn tonnes) World share (%)

1 China 489 36.0%

2 Japan 120 9.0%

3 US 98 7.0%

4 Russia 72 5.0%

5 India 53 4.0%

6 South Korea 51 3.5%

Source: JSW Steel AR FY08

Consumption: The global steel consumption grew by 6.6% to 1.2 bn tonnes as

compared to 2008 levels. The global finished steel consumption showed a growth of 8%

CAGR, in line with the production, between the period 2005 and 2009. The finished steel

consumption in China and India grew by 13% and 11% respectively in 2009. The BRIC

countries were the major demand drivers for steel consumption, accounting for nearly

80% of incremental steel consumption in 2009.



Rank Country Consumption (mn tonnes) World share (%)

1 China 408 36.0%

2 US 108 9.0%

3 Japan 80 6.7%

4 South Korea 55 4.6%

5 India 51 4.2%

6 Russia 40 3.3%

Source: JSW Steel AR FY08

Outlook : As per IISI estimates, the finished steel consumption in world is expected

to reach a level of 1.75 bn tonnes by 2016, growth of 4% CAGR over the consumptionlevel of 2009. The steel consumption in 2011 and 2012 is estimated to grow above 6%

Indian Steel Industry

India, which has emerged among the top five steel producing and consuming countries

over the last few years, backed by strong growth in its economy.

Capacity: Steel capacity increased by 6% to 60 m tonnes in FY08. It registered a

robust growth of 8% CAGR between the period FY05 and FY09. The capacity expansion

in the country was primarily through brown field expansions as it requires lower

investments than a Greenfield expansion.

Production: Steel production has registered a growth of 6% to reach a level of 54 m

tonnes in FY8. The production has grown nearly in line with the capacity expansion and

registered a growth of 7% CAGR with an average capacity utilization of 92% between

the period FY04 and FY08. India is currently the fifth largest producer of steel in the

world, contributing almost 4% of the total steel production in world. The top three steel

producing companies (SAIL, Tata Steel and JSW Steel) contributed around 45% of the

total steel production in FY08.



Consumption: Steel consumption has increased by 10% to 51.5 m tonnes in FY08.

Consumption growth has been exceeding production growth since past few years. It grew

at a CAGR of 12% between FY04 and FY08. Construction & infrastructure,

manufacturing and automobile sectors accounted for 59%, 13% and 11% for the total

consumption of steel respectively in FY08. Although steel consumption is rapidly

growing in the country, the per capita steel consumption still stands at 48 kgs. Moreover,

in the rural areas in the country, it stands at a mere 2 kg. It should be noted that the

world’s average per capita steel consumption was 189 kg and while that of China was

309 kg in 2007.



0

10

20

30

40

50

60

2003 2004 2005 2006 2007

STEEL PRODUCTION

Trade equations: India became net importer of steel in FY08 with estimated net

imports of 1.9 m tonnes. In the past few years, its exports have remained at more or less

the same levels while on the other hand, imports have increased on the back of robust

demand and capacity constraints in the domestic markets. The imports showed a growth

of around 48% while exports declined by around 6% in FY08.

Outlook: As per IISI estimates, the demand for steel in India are expected to grow at a

rate of 9% and 12% in 2010 and 2011. The medium term outlook for steel consumption

remains extremely bullish and is estimated at an average of above 10% in the next few

years.



ARCELLOR- MITTAL DEAL:-

A new steel giant is to be created out of a bitter battle, after Arcelor formally agreed on a

€26.5 billion takeover by rival Mittal Steel. The deal combines Arcelor - a symbol of

successful, pan-European cooperation and economic revival, with operations that span

Luxembourg, Belgium, France and Spain - with a fast- growing conglomerate founded by

the India-born Lakshmi Mittal, who built a fortune turning around sick steel plants in

rapidly expanding markets from Trinidad to Kazakhstan.

The deal, valued at $33.1 billion, is the latest sign that shareholder activism is

marching through the once staid and sleepy boardrooms of Europe. The agreement to pair

with Mittal caps a wrenching turnaround for Arcelor's management, which once

dismissed Mittal as a "company of Indians" but was forced to backtrack after

shareholders threatened to revolt.

Politicians in Europe who once criticized Mittal have remained mum in recent

days, and the merger brings hope that protectionist barriers against such deals may be

eroding in Europe.

Mittal is paying €40.37 a share for Arcelor, nearly double what the company was trading

at when Mittal first made an offer in January. The new company named Arcelor-Mittal

and headquartered in Luxembourg. Joseph Kinsch, chairman of Arcelor, is chairman of

the new company, and succeeded by Mittal when Kinsch retires next year.

"It's been a long struggle," for investors and Mittal board member.

"Now that we have had an opportunity to be inside, with management’’.The deal would

create "global leadership in steel" not just by ton but by value.

Getting to this point has involved a bruising fight for both sides. Mittal first

made an unexpected €18.6 billion offer for Arcelor and was swiftly and harshly rebuked

by Arcelor management and a chorus of European politicians who criticized everything

from his grammar to his Indian origins to the quality of his company's steel. Arcelor's

bare-knuckled defense strategy included refusing to meet with Mittal until a string of



demands were met, and simultaneously orchestrating a €13 billion deal with Severstal of

Russia to keep him away.

The case……

Mittal makes surprise €18.6 billion bid for Arcelor in January 2006

Arcelor management announce large dividend

Arcelor makes very positive profit report, which is later found to be inflated

Arcelor makes rosy forecast for future performance

Arcelor management and European politicians criticize Mittal

Arcelor management refuses to meet with Mittal until a string of demands

were met

Arcelor tries to get Luxembourg government to write a takeover law shutting

out Mittal

Arcelor unions fear job cuts, reduction in social standards

Arcelor managers fear Mittal will shift emphasis from long- to short-term

goals

Arcelor commits to buy North American steel company that will cause Mittal

anti-trust problems Agreement contains clause making it costly to not go

through with sale

Arcelor made €13 billion deal with Severstal of Russia, including break-up

fee of €140 million

Arcelor, Mittal, and Severstal engage in heavy advertising, meetings with

investors and politicians

Arcelor arranges for shareholder meeting where Severstal deal would be

approved unless 50% plus one of shareholders were present and voted it



down, an unusually high percent. The meeting isn’t scheduled until after

Severstal deal has been nearly finalized.

Mittal raises offer to €26.5 billion, and agreed to cede some management

control and family voting rights

REASONS FOR FAILURE OF MERGERS ANDACQUISITIONS

However the M&A basically try at enhancing the shareholders value or wealth, theresults of several experiential studies make known that M&A time after time benefit thetarget company's shareholders but not the acquirer company shareholders. A majority of corporate mergers fail. Failure occurs on average, in every sense, acquiring firm stock



prices likely to reduce when mergers are announced; many acquired companies sold off;and prosperity of the acquired company is lower after the merger relative to comparablenon-merged firms. Consulting firms have also estimated that from one half to two thirdsof M&A do not come up to the expectations of those transacting them, and many resultedin divestitures. Statistics show that roughly half of acquisitions are not successful. M&A

fails quite often and fails to create value or wealth for shareholders of the acquirers. Anexact answer as to why mergers fail to generate value for acquiring shareholders cannot be provided because mergers fail for a mass of reasons. Some of the important reasonsfor failures of mergers are discussed below:

Too Much Premium

In an aggressive bidding situation, a company may tend to pay more. Oftenhighest bidder is one who overestimates value out of ignorance. Though heemerges as the winner, he happens to be in a way the unlucky winner. This iscalled winners curse theory. When the acquirer fails to get the synergies required

compensating the price, the M&A fails. More you pay for a company, the harder you will have to work to make it worthwhile for your shareholders. When the price paid is too much, how fine the deal may be executed; the deal may notcreate value.

Size Issues

A disparity in the size between acquirer and target has been found to lead to poor acquisition performance. Many acquisitions fail either because of 'acquisitionindigestion' through buying too big targets or failed to give the smaller acquisitions the time and attention it required.

Lack of Investigation

Acquisition requires gathering a lot of data and information and analyzing it. Itrequires extensive research. A carelessly carried out research about the acquisitioncauses the ruin acquirer’s wealth.

Diversification

Very few firms have the capability to successfully manage the diversified businesses. Unrelated diversification has been associated with lower financial performance, lower capital productivity and a higher level of variance in performance for a variety of reasons including a lack of industry or geographicknowledge, a lack of focus as well as perceived inability to gain meaningful



synergies. Unrelated acquisitions, which may appear to be very promising, mayturn out to be big dissatisfaction in reality.

Previous Acquisition Familiarity

While previous acquisition experience is not necessarily a requirement for futureacquisition success, many failed acquirers usually have little previous acquisitionexperience. Previous experience will help the acquirers to learn from the previousacquisition mistakes and help them to make successful acquisitions in future. Itmay also help them by taking advice in order to maximize chances of acquisitionsuccess. Those serial acquirers, who have the in house skills necessary to promoteacquisition success as well trained and competent implementation team, are morelikely to make successful acquisitions.

Unwieldy and Inefficient

Multinational mergers proliferated in 1960s and 1970. Many conglomerates proved unwieldy and inefficient and were injured in 1980s and 1990s. Theuncontrollable conglomerates contributed to the rise of various types of divestitures in the 1980s and 1990s.

Poor Cultural Fits

Cultural fit between an acquirer and a target is one of the most abandoned areas of analysis prior to the closing of a deal. However, cultural due diligence is every bitas important as careful financial analysis. Without it, the chances are great thatM&A will quickly amount to misunderstanding, confusion and conflict. Cultural

due diligence involve steps like determining the importance of culture, assessingthe culture of both target and acquirer. It is useful to know the target management behavior with respect to dimensions such as centralized versus decentralizeddecision making, speed in decision making, time horizon for decisions, level of team work, management of conflict, risk orientation, openness to change, etc. It isnecessary to assess the cultural fit between the acquirer and target based oncultural profile. Potential sources of conflict must be managed. It is necessary toidentify the impact of cultural gap, and develop and execute strategies to use theinformation in the cultural profile to assess the impact that the differences have.

Poor Organization Fit

Organizational fit is described as "the match between managerial practices,cultural practices and employees characteristics of the target and acquirer. Itmanipulates the ease with which two organizations can be integrated duringimplementation. Mismatch of organization fit leads to failure of mergers.

Poor Strategic Fit



A Merger will give up the desired result only if there is strategic fit between themerging companies. Mergers with strategic fit can get better profitability throughreduction in overheads, effective utilization of facilities, the ability to raise fundsat a lower cost, and deployment of surplus cash for expanding business withhigher returns. But many a time lack of strategic fit between two merging

companies especially lack of synergies results in merger failure. Strategic fit canalso include the business philosophies of the two entities (return on investment v/smarket share), the time frame for achieving these goals (short-term v/s long term)and the way in which assets are utilized. For example, P&G –Gillette merger inconsumer goods industry is a unique case of acquisition by an innovativecompany to expand its product line by acquiring another innovative company,which was, described analysts as a perfect merger.

Striving for Bigness

Size no doubt is an important element for success in business. Therefore there is a

strong tendency among managers whose compensation is significantly influenced by size to build big empires. Size maximizing firms may engage in activities,which have negative net present value. Therefore when evaluating an acquisitionit is necessary to keep the attention focused on how it will create value for shareholders and not on how it will increase the size of the company.

Defective Evaluation

At times acquirers do not carry out the detailed diligence of the target company.They make an incorrect assessment of the benefits from the acquisition and landup paying a higher price.

Inadequately Managed Integration

Integration of the companies requires a high quality management. Integration isvery often poorly managed with little planning and design. As a resultimplementation fails. The key variable for success is managing the company better after the acquisition than it was managed before. Even good deals fail if they are poorly managed after the merger.

Failure to Take Instant Control

Control of the new unit should be taken immediately after signing of theagreement. ITC did so when they took over the BILT unit even though theconsideration was to be paid in 5 yearly installments. ABB put new managementin place on day one and reporting systems in place by three weeks.

Failure to Set the Pace for Integration



The significant task in the merger is to integrate the target with acquiringcompany in every respect. All function such as marketing, commercial, finance, production, design and employees should be put in place. In addition to thefamous persons of acquiring company the key persons from the acquiredcompany should be retained and given sufficient prominence opportunities in the

combined organization. Delay in integration leads to delay in product shipment,development and slow down in the company's road map. Acquisition of ScientificData Corporation by Xerox in 1969 and AT&T's acquisition of computer maker NCR Corporation in 1991 were troubled deals, which resulted in large write offs.The speed of integration is extremely important because uncertainty andambiguity for longer periods destabilize the normal organizational life.

Incomplete and Inadequate Due Diligence

Lack of due diligence is lack of in depth analysis of all important features likefinance, management, capability, physical assets as well as intangible assets

results in failure. ISPAT Steel is a corporate acquirer that conducts M&Aactivities after complicated due diligence.

Ego Conflict

Ego clash between the top management and subsequently lack of coordinationmay lead to collapse of company after merger. The problem is more important incases of mergers between equals.

Merger between Equals

Merger between two equals may not work. The Dunlop Pirelli merger in 1964,which created the world's second largest tier company, ended in an expensivedivorce. Manufacturing plants can be integrated easily, human beings cannot.Merger of equals may also create ego clash.

Over Leverage

Cash acquisitions results in the acquirer assuming too much debt. Future interestcost consumes too great a portion of the acquired company's earnings.

Incompatibility of Partners

Alliance between two strong companies is a safer bet than between two weak partners. Frequently many strong companies actually seek small partners in order to gain control while weak companies look for stronger companies to bail themout. But experience shows that the weak link becomes a drag and causes friction



between partners. A strong company taking over a sick company in the hope of rehabilitation may itself end up in liquidation.

Limited Focus

If merging companies have entirely different products, markets systems andcultures, the merger is ruined to failure. Added to that as core competencies areweakened and the focus gets unclear the fallout can be dangerous. Purelyfinancially motivated mergers such as tax driven mergers on the advice of accountant can be hit by adverse business consequences. The Tata’s for example,sold their soaps business to Hindustan Lever.

Failure to Get Figures Audited

It would be serious mistake if the takeovers were done without a proper audit of financial affairs of the target company. Though the company pays for the assets of

the target company, it also assumes responsibility to pay all the liabilities. Areasto look for are stocks, salability of finished products, receivables and their collectibles, details and location of fixed assets, unsecured loans, claims under litigation, loans from the promoters, etc. When ITC took over the paperboardmaking unit of BILT near Coimbatore, it arranged for complete audit of financialaffairs of the unit. Many a times the acquirer is mislead by window-dressedaccounts of the target.

Failure to Get an Objective Evaluation of the Target Company' Condition

Risk of failure will be minimized if there is a detailed assessment of the target

company's business conditions carried out by the professionals in the line of business. Detailed examination of the manufacturing facilities, product designfeatures, rejection rates, and distribution systems, profile of key people and productivity of the workers is done. Acquirer should not be carried away by thestate of the art physical facilities like a good head quarters building, guest houseon a beach, plenty of land for expansion, etc.

Failure of Top Management to Follow-Up

After signing the M&A agreement the top management should not sit back and letthings happen. First 100 days after the takeover determine the speed with whichthe process of tackling the problems can be achieved. Top management follow-up



is essential to go with a clear road map of actions to be taken and set the speed for implementing once the control is assumed.

Mergers between Lame Ducks

Merger between two weak companies does not succeed either. The example is theStud backer- Packard merger of 1955 when two ailing carmakers joined hands.By 1964 both companies were closed down.

Lack of Proper Communication

Lack of proper communication after the announcement of M&A will create lot of uncertainties. Apart from getting down to business quickly companies have tonecessarily talk to employees and constantly. In spite of how well executivescommunicate during a merger or an acquisition, uncertainty will never becompletely eliminated. Failure to manage communication results in inaccurate

perceptions, lost trust in management, morale and productivity problems, safety problems, poor customer service, and defection of key people and customers. Itmay lead to the loss of the support of key stakeholders at a time when that supportis needed the most.

Failure of Leadership Role

Some of the role leadership should take seriously are modeling, quantifyingstrategic benefits and building a case for M&A activity and articulating andestablishing high standard for value creation.

Insufficient Attention to People Issues

Not giving sufficient attention to people issues during due diligence process may prove costly later on. While lot of focus is placed on the financial and customer capital aspects, not enough attention is given to aspects of human capital andcultural audit. Well conducted HR due diligence can provide very accurateestimates and can be very critical to strategy formulation and implementation.

Loss of Identity

Merger should not result in loss of identity, which is a major strength for the

acquiring company. Jaguar's car image dropped drastically after its merger withBritish Leyland.

Diverging from Core Activity

In some cases it reduces buyer's efficiency by diverting it from its core activityand too much time is spent on new activity neglecting the core activity.



Expecting Results too quickly

Immediate results can never be expected except those recorded in red ink.Whirlpool ran up a loss $100 million in its Philips white goods purchase.R.P.Goenk's takeovers of Gramaphone Company and Manu Chhabria's takeover

of Gordon Woodroffe and Dunlops fall under this category.

ANALYSIS & INTERPRETATION OF MERGER AND

ACQUISITION



A merger is a combination of two corporations in which only one corporation survives

and the merged corporation goes out of subsistence. Alternatively, in merger two

corporations combine and share their resources in order to accomplish mutual objectives

and both companies bring their own shareholders, employees, customers and the

community at large. Acquisition takes place when one firm is purchasing the assets or

shares of another company.

Mergers are often categorized as horizontal, vertical, or conglomerate. A horizontal

merger is one that takes place between two firms in the same line of business whereas

vertical merger involves companies at different stages of production. The buyer expands

backwards in the direction of the source of the raw material or forward in the direction of

the customer. The last one, i.e., conglomerate merger involves companies in unrelated

line of business. This distinction is very much necessary to make and understand the

reasons for the mergers.

The scale and the pace at which merger activities are coming up are remarkable. The

recent booms in merger and acquisitions suggest that the organizations are spending a

significant amount of time and money either searching for firms to acquire or worrying

about whether some other firm will acquire them. Also, mergers are regarded as one of

the activities the purpose of business expansion or a measure of external growth in

contrast to internal growths. The recent phenomenon booms in mergers and acquisitions

would increase at a much faster rate in near future because the world markets are

becoming more integrated because of open trade policies and hence more and more

companies are adopting and forming strategic alliances in order to compete in the

competitive world and to maintain there market shares.

Merger and acquisition decision is an investment decision. This is the most important

decision, which influences both the acquiring firm and the target firm, which is to be

acquired. An organization cannot make that crucial decision without incisive analysis by



financial planners and corporate managers. The acquiring firm must correctly value the

firm to be acquired and the acquired firm must get the returns for the goodwill they have

created over the years in the market. Growth through acquisition is occurring in an

unprecedented number of companies today as strategic acquisitions replace the once-

prevalent hostile takeovers by corporate raiders. In the current business environment, it is

vital to understand how to blend strategic and financial concepts to evaluate potential

acquisitions.

Motives

The findings from the theoretical material and the empirical investigation will be

analyzed both horizontally and vertically according to the following: -

Fig-6

There are two types of motives involved in merger and acquisition and these are Explicit

and Implicit motives.

Explicit Motives

Synergy: Synergy means that the merged firm will have a greater value than

the sum of its parts as a result of enhanced revenues and the cost base.



Economies of Scale: Economic of scale refer to the reduction in unit cost

achieved by producing a large volume of a product. Horizontal mergers aim

at achieving economies of scale. This phenomenon continues while the firm

grows to its optimal size, after which a firm experiences diseconomies of

scale.

Economies of Vertical Integration: Economies of vertical integration are

achieved in vertical mergers. It makes coordination of closely related

operating activities easier.

Entry to New Markets and Industries: A firm that wants to enter a new

market but lacks the know-how can do so through the purchase of an existing

player in that product or geographical market. This makes the two firms

worth more together than separately.

Tax Advantages: Past losses of an acquired subsidiary can be used to

minimize present profits of the parent company and thus lower tax bills.

Thus, firms have a reason to buy firms that have accumulated tax losses.

Diversification: One of the reasons for conglomerate mergers is

diversification of risk. There are two types of risks associated with

businesses- systematic and unsystematic risk. Systematic variability cannot

be removed by diversification and hence mergers are not able to eliminatethis risk. Though, unsystematic risk can be spread through mergers.

Managerial Motives: The management team of the acquiring firm tends to

benefit from the merger activity. The four most important managerial

motives for merger are empire building, status, power and remuneration.

Implicit Motives



Hubris: It is like a maturity test for the owners and the company boards of

directors when they see the opportunity to form a new business cycle.

Excess of Money: When a company has excess of money, the question of

what to do with it eventually comes up and this leads towards merger and

acquisition.

Steps Involved in an Acquisition Valuation



Procedures for Analyzing Valuation of the Firm

Fig-7



An acquisition valuation program can be segregated into five distinct steps like:

Step 1: Establish a motive for the acquisition.

Step 2: Choose a target.

Step 3: Value the target with the acquisition motive built in.

Step 4: Choose the accounting method for the merger/acquisition - purchase or pooling.

Step 5: Decide on the mode of payment - cash or stock.

Evaluations

Implicit Motives

• Financing Mergers

Fig-8



The triangle in the figure provides a view of acquisition financing mechanism. As the

options for financing the acquisition would increase, the layers in the triangle would also

increase. But the basic question that arises or the consideration that comes is whether the

transaction should be made in cash or stock as it has different effect on the various

stakeholders of both the organizations the acquiring firm as well as the target firm. The

influence of method of payment on post-merger financial performance is ambiguous.

Post merger performance maybe affected by the means of payment in the takeover. There

are mainly two ways, in which mergers can be financed,

Cash

Stock Using cash for payment helps the acquirer's shareholders to retain the same level of

control over the company. Another obvious reason of financing mergers through cash is

the simplicity and preciseness that gives a greater chance of success. Another advantage

of using cash to the target's shareholders is that it is more certain in its value. Also, the

recipients can spread their investments by purchasing a wide-ranging portfolio. There is

also a disadvantage to target shareholders. They may be liable to pay capital gains tax.

This is payable when a gain is realized.

Estimating Cost When the Merger is financed by Stock

The cost depends on the value of the shares in the new company received by

the shareholders of the selling company.

Cost = N * P of AB - PV of B

Where,

N = the number of shares received by the sellers

P of AB = price per share of the merged firm



PV of B = present value of B (selling firm)

Workings of Mergers

Merger accounting

A merger can be either treated as a purchase or a pooling of interests. Under this method,

assets of the acquired firm must be reported at the fair market value on the books of the

acquiring firm. Under this method, goodwill, which is the excess of the purchase price

over the sum of the fair market values of the individual assets acquired, is generated.

Under the second method, pooling of interests, the assets of the merged firm are valued at

the same level as they were carried out in acquired and acquiring firms.

Tax Considerations

An acquisition can be taxable or tax-free. In a taxable acquisition, shareholders of the

selling firm are treated for tax purposes as having sold their shares and are liable to pay

tax on any capital gains or losses. In a tax-free acquisition, the selling shareholders are

viewed as exchanged their old shares for similar ones, and they do not experience any

capital gains or losses. The taxes paid by the merged firm also depend on the tax-status of

the acquisition. There is no revaluation of assets in a tax-free acquisition, whereas, in a

taxable acquisition, the assets are devalued and any increase or decrease is treated as a

taxable gain or loss.

The Impact of Mergers

Mergers have a universal impact, practically everyone from society, shareholders,

employees, and directors to financial institutions. Society can benefit from the merger if

it results in producing goods at low costs due to economies of scale or improved

management. The acquiring shareholders usually get poor returns and therefore very

small average gains. However, target shareholders usually gain from mergers, as the

acquirers have to pay a substantial premium over the pre-bid share price to convince

target shareholders to sell. Employees may gain or lose from a merger activity. Mergers

generate significant gains to the target firm's stockholders and buyers generally break



even, there are positive benefits from mergers. The yardstick to measure a successful

merger is the profit level. Profitability is the only overall significant identifier.

RECOMMENDATION

Mergers & Acquisitions have given many benefits to Indian Economy in many ways like

in terms of creating many jobs, increasing the profit portfolio of various mergerd or

acquired companies. Here are few companies examples that it is beneficial to Indian

economy. The Polaris-OrbiTech merger saw a jet in the merged entity’s revenues from

$60 million to $125 million. The merger also added 1,400 employees to Polaris, taking

the total employee strength to 4,000.

The Indian economy has been growing with a quick rapidity and has been emerging at

the top, be it IT, R&D, pharmaceutical, infrastructure, energy, consumer retail, telecom,

financial services, media, and hospitality etc. It is second fastest growing economy in theworld with GDP touching 9.3 % in the year 2007. This growth drive was supported by

the double digit growth of the services sector at 10.6% and industry at 9.7% in the first

quarter of 2006-07. Investors, big companies, industrial houses view Indian market in a

growing and proliferating phase, whereby returns on capital and the shareholder returns

are far above the ground. Both the inbound and outbound mergers and acquisitions have

increased dramatically. According to Investment bankers, Merger & Acquisition deals in

India will cross $100 billion in 2008, which is double last year’s level and quadruple of

2005.

The power sector has been the support of this year's M&A, accounting for $5 bn or 42 per cent of the deal value in the infrastructure sector. The power sector commanded 19

per cent share in the total M&A value of $26 bin this year as compared to about $4 bn

last year representing a 7.4 per cent share of the total deal value of $51 bn. Investments

by India Inc in the UK during 2007-08 created 3,846 jobs, ahead of its rival economy

China that was involved in creating only 898 jobs.

M&As have become very popular over the years especially during the last two decades

owing to rapid changes that have taken place in the business environment. Generally the

objective of M&A is wealth maximization of shareholders by seeking gains in terms of

synergy, economies of scale, better financial and marketing advantages, diversification

and reduced earnings volatility, improved inventory management, increase in domestic

market share and also to capture fast growing international markets abroad. But

surprisingly, however the number and value of M&A are growing rapidly which is



beneficial for that particular company and also for the Indian economy in increasing the

capital gain.

LIMITATION OF THE STUDY

Every work has its own limitation. Limitations are extent to which the process should not

exceed. Limitations of this project are:-

The project was constrained by short time limit of few months.

No personal interaction with the clients of the organization.

Non disclosure of company’s policy or its system or pattern of doing work was an

obstacle in acquiring complete information.

No accessibility to the storage of the information available on the intranet of the

company.



CONCLUSION

By doing this project I came to know that after having so many mergers and acquisitions

in India it is very beneficial for Indian companies and also for an Indian economy in

terms of capital appreciation because if there is any merger then it creates many jobs, so

that gives direct effect. Apart from this the company which is merging or acquiring

another one and if that is a good prifit making company in that case it will help in

increasing Indian companyy’s revenue and also return on investment.

For example Hindalco has acquired Novelis , its profit was good but Novelis was uder

debt so Hindalco has paid all its debt and acquired the company because novelis presence

is almost everywhere in the world and its customers are like BMW,DC,Coca Cola, Audi

Ford,Jaguar so Hindalco will get these many clients inheritance by Novellis so which will

give help to gain more and more profit and that will increase revenue so this is how it

gives effect on the capital appreciation of Indian economy.

To do research for this project I have used secondary data that is from various books,newspapers and websites. I came to the conclusion part that yes if there are more mergers

and acquisitions will be there then it gives good effect on capital appreciation of Indian

economy.



WHAT WE LEARNED IN THIS:-

A merger can happen when two companies decide to combine into one entity or

when one company buys another. An acquisition always involves the purchase of

one company by another.

The functions of synergy allow for the enhanced cost efficiency of a new entity

made from two smaller ones - synergy is the logic behind mergers and

acquisitions.

Acquiring companies use various methods to value their targets. Some of these

methods are based on comparative ratios - such as the P/E and P/S ratios -

replacement cost or discounted cash flow analysis.

An M&A deal can be executed by means of a cash transaction, stock-for-stock

transaction or a combination of both. A transaction struck with stock is not

taxable.

Break up or de-merger strategies can provide companies with opportunities to

raise additional equity funds unlock hidden shareholder value and sharpen

management focus. De-mergers can occur by means of divestitures, carve-outs

spin-offs or tracking stocks.

Mergers can fail for many reasons including a lack of management foresight, the

inability to overcome practical challenges and loss of revenue momentum from a

neglect of day-to-day operations.



BIBLIOGRAPHY

REFERENCES

REFRENCE BOOKS

1) Rajesh kumar – Mergers and acquisition

2) Financial management 3

rd

edition (M.Y.khan)

3) Companies ACT 1956

4) Income tax ACT 1961

NEWSPAPERS

1) ECONOMIC TIMES

WEBSITES

1) www.google.com

2) www.wikipedia.com

3) www.icicidirect.com

4) www.mergersindia.com

5) www.mergerdigest.com

Vipin Project 4 Sem

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