G.L.A INSTITUTE OF TECHNOLOGY & MANAGEMENT, MATHURA
MANAGEMENT RESEARCH PROJECT
2011
A REPORT ON
DIFFERENT FINANCING APPROACHES IN MERGER & ACQUISITION
Under the guidance of Submitted by
Mr. Satyendra Yadav Ajay Kumar Verma
Roll no.-0906370006
1
ACKNOWLEDGEMENT
I hereby like to express my thanks from the deepest portion of our heart to our
Director Mrs. REKHA SINGHAL, for forecasting the excellent academic
environment in the institute, which made this effort fruitful.
I express my deep sense of gratitude to Mr. Satyendra Yadav, Faculty of institute,
for his constant guidance and encouragement throughout the period of the project
study. I am indebted to his guidance, spirit and valuable suggestions.
In the last I would like to thank all staff members in the computer laboratory for
their troubleshooting expertise, directly or indirectly in various ways leading to
the successful completion of the study report, which helps me in report formation.
2
Contents
Abstract
Objective
3
Abstract
The project is basically to understand the various approaches of funding and
valuation in Merger &Acquisition. Study involves their deep knowledge and how
the companies are financing their acquisitions. In which all kinds a company can
raise the funds during mergers and acquisitions, which valuation approach is
efficient for the company to get valued?
Analyzing the recent mergers happened in Indian market. Understanding
what can be the various reasons which make companies to go for mergers and
acquisitions. What can be the right mix of debt, equity, cash and other loans and
advances in order to finance the acquisitions? Asses the overall impact of a
merger on company performance, Impact on financials of a company after the
merger and acquisition.
In India, the process of liberalization and globalization has influenced the
functioning and governance of Indian companies, forcing them to refocus their
strategies. In the process of refocusing, acquisitions have been a normal
phenomenon; they represent one of the most effective methods of corporate
restructuring and have become an integral part of the long-term business strategy
of corporate enterprises. A wide range of Indian companies have been active in
the Merger & Acquisition area. In the presently competitive environment, the
concept has been gaining increasing importance as a way of improving
competitiveness and efficiency. In the changing economic scenario, these have
emerged as a vital growth strategy among the corporate s and increasingly getting
accepted. In recent years, Indian companies have undertaken acquisitions in
international markets in order to globalize their operations and improve their
efficiency and international competitiveness.
Acquisitions have gained importance in recent times. Business
consolidation by large industrial houses, consolidation of business by
4
multinationals operating in India, increasing competition amongst domestic
companies and competition against imports have all combined to drive
acquisitions activities in India. The role of mergers and acquisitions has evolved
as a strategy tool for fast-track technology-led companies. In the current rapidly
changing environment and in the era of systemic innovation, where technology is
embedded in people and processes, well-planned M&A are recognized as critical
to fast-track technology company success - and even survival.
The four main reasons for making an acquisition include:
1. To acquire complementary products, in order to broaden the line
2. To acquire new markets or distribution channels
3. To acquire additional mass, and benefit from economies of scale
4. To acquire technology, to complement or replace the currently used
one.
Acquisition synergies are great as they may give companies the needed
technology, people, infrastructure, global sales, marketing and distribution
opportunities. This is the reason why the majority of technology companies that
go public tend to be acquired within two years after the flotation.
5
Objective:
The objectives of this project are:
1. To study the various financing approaches through which a company can
finance its acquisitions
2. To study the various valuation approaches use for acquiring a company
3. To study the impact on acquired and acquirer company
Main Idea
6
One plus one makes three: this equation is the special alchemy of a merger or an
acquisition. The key principle behind buying a company is to create shareholder
value over and above that of the sum of the two companies. Two companies
together are more valuable than two separate companies - at least, that's the
reasoning behind Merger &Acquisition.
This rationale is particularly charming to companies when times are tough.
Strong companies will act to buy other companies to create a more competitive,
cost-efficient company. The companies will come together hoping to gain a
greater market share or to achieve greater efficiency. Because of these potential
benefits, target companies will often agree to be purchased when they know they
cannot survive alone.
7
Distinction between Mergers and Acquisitions-
Although they are often spoken in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new
owner, the purchase is called an acquisition. From a legal point of view, the target
company ceases to exist, the buyer "swallows" the business and the buyer's stock
continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of
about the same size, agree to go forward as a single 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.
In practice, however, actual mergers of equals don't happen very often.
Usually, one company will buy another and, as part of the deal's terms, simply
allow the acquired firm to proclaim that the action is a merger of equals, even if
it's technically an acquisition. Being bought out often carries negative
connotations, therefore, by describing the deal as a merger, deal makers and top
managers try to make the takeover more palatable.
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 unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. 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 real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders
8
Synergy-
Synergy is the magic force that allows for enhanced cost efficiencies of the new
business. Synergy takes the form of revenue enhancement and cost savings. By
merging, the companies hope to benefit from the following:
1. Staff reductions - As every employee knows, mergers tend to mean job
losses. Consider all the money saved from reducing the number of staff
members from accounting, marketing and other departments. Job cuts will
also include the former CEO, who typically leaves with a compensation
package.
2. Economies of scale - Yes, size matters. Whether it's purchasing stationery
or a new corporate IT system, a bigger company placing the orders can
save more on costs. Mergers also translate into improved purchasing power
to buy equipment or office supplies - when placing larger orders,
companies have a greater ability to negotiate prices with their suppliers.
3. Acquiring new technology - To stay competitive, companies need to stay
on top of technological developments and their business applications. By
buying a smaller company with unique technologies, a large company can
maintain or develop a competitive edge.
4. Improved market reach and industry visibility - Companies buy
companies to reach new markets and grow revenues and earnings. A merge
may expand two companies' marketing and distribution, giving them new
sales opportunities. A merger can also improve a company's standing in the
investment community: bigger firms often have an easier time raising
capital than smaller ones.
That said, achieving synergy is easier said than done - it is not automatically
realized once two companies merge. Sure, there ought to be economies of scale,
9
when two businesses are combined, but sometimes a merger does just the
opposite. In many cases, one and one add up to less than two.
Sadly, synergy opportunities may exist only I n the minds of the corporate
leaders and the deal makers. Where there is no value to be created, the CEO and
investment bankers - who have much to gain from a successful M&A deal - will
try to create an image of enhanced value. The market, however, eventually sees
through this and penalizes the company by assigning it a discounted share price.
We'll talk more about why M&A may fail in a later section of this tutorial.
10
Acquisitions:
As you can see, an acquisition may be only slightly different from a merger. In
fact, it may be different in name only. Like mergers, acquisitions are actions
through which companies seek economies of scale, efficiencies and enhanced
market visibility. Unlike all mergers, all acquisitions involve one firm purchasing
another - there is no exchange of stock or consolidation as a new company.
Acquisitions are often congenial, and all parties feel satisfied with the deal. Other
times, acquisitions are more hostile.
In an acquisition, as in some of the merger deals we discuss above, a
company can buy another company with cash, stock or a combination of the two.
Another possibility, which is common in smaller deals, is for one company to
acquire all the assets of another company. Company X buys all of Company Y's
assets for cash, which means that Company Y will have only cash (and debt, if
they had debt before). Of course, Company Y becomes merely a shell and will
eventually liquidate or enter another area of business.
Another type of acquisition is a reverse merger, a deal that enables a
private company to get publicly-listed in a relatively short time period. A reverse
merger occurs when a private company that has strong prospects and is eager to
raise financing buys a publicly-listed shell company, usually one with no
business and limited assets. The private company reverse merges into the public
company, and together they become an entirely new public corporation with
tradable shares.
Regardless of their category or structure, all mergers and acquisitions have
one common goal: they are all meant to create synergy that makes the value of
the combined companies greater than the sum of the two parts. The success of a
merger or acquisition depends on whether this synergy is achieved.
11
Synergy: The Premium for Potential Success-
For the most part, acquiring companies nearly always pay a substantial premium
on the stock market value of the companies they buy. The justification for doing
so nearly always boils down to the notion of synergy; a merger benefits
shareholders when a company's post-merger share price increases by the value of
potential synergy.
Let's face it, it would be highly unlikely for rational owners to sell if they
would benefit more by not selling. That means buyers will need to pay a premium
if they hope to acquire the company, regardless of what pre-merger valuation tells
them. For sellers, that premium represents their company's future prospects. For
buyers, the premium represents part of the post-merger synergy they expect can
be achieved. The following equation offers a good way to think about synergy
and how to determine whether a deal makes sense. The equation solves for the
minimum required synergy.
In other words, the success of a merger is measured by whether the value of the
buyer is enhanced by the action. However, the practical constraints of mergers,
which we discuss in part five, often prevent the expected benefits from being
fully achieved. Alas, the synergy promised by deal makers might just fall short.
12
What to Look For-
It's hard for investors to know when a deal is worthwhile. The burden of
proof should fall on the acquiring company. To find mergers that have a chance
of success, investors should start by looking for some of these simple criteria:
A reasonable purchase price - A premium of, say, 10% above the market price
seems within the bounds of level-headedness. A premium of 50%, on the other
hand, requires synergy of stellar proportions for the deal to make sense. Stay
away from companies that participate in such contests.
1. Cash transactions - Companies that pay in cash tend to be more careful
when calculating bids and valuations come closer to target. When stock is
used as the currency for acquisition, discipline can go by the wayside.
2. Sensible appetite – An acquiring company should be targeting a
company that is smaller and in businesses that the acquiring company
knows intimately. Synergy is hard to create from companies in disparate
business areas. Sadly, companies have a bad habit of biting off more than
they can chew in mergers.
Mergers are awfully hard to get right, so investors should look for acquiring
companies with a healthy grasp of reality.
13
Financing Of Acquisition:
Determine the Best Structure for the Acquisition-
The determination of whether to structure the purchase as an asset deal, a stock
deal or a merger of two companies with one as the surviving corporation will
have a significant impact not only on the net proceeds available to the seller from
the transaction but also the cost accounting for the transaction and the impact on
the business going forward. For example, making a Section 338 Election under
the Internal Revenue Code will enable a stock sale to be treated as an asset sale
for accounting purposes, a favorable result for the buyer if they can negotiate it as
a condition to closing.
On the other hand, structuring the transaction as an asset sale rather than a
stock sale will substantially reduce their potential exposure for successor liability
relating to the operation of the target business prior to closing. Think about the
seller/management as well. Does it make sense to persuade the seller to stay on
with the target business after the closing to help smooth the transition and
integrate the business and customer base or do you not want the seller involved
post-closing at all? Likewise, are the parties in agreement on price or not? If it
continues to be a hotly contested issue, an appropriate earn-out based on future
revenues over a fixed period of time may be what they need to offer to incentives
the seller and management post-closing. They’ll need to think about holdbacks as
well. If they have a reserve pool of funds in escrow or are paying part of the
purchase price by promissory note, they have an additional layer of protection
from future liabilities of the business pre-closing, provided the documents are
appropriately drafted. Accordingly, tax and legal advice from acquisition experts
can make a big difference in the price they may pay for this acquisition.
14
What Sources of Financing Are Available?
After establishing the structure of the acquisition, they can focus on identifying
the most appropriate and efficient sources of financing. First determine if the
seller wants to “cash out” immediately or if they would be willing to support the
acquisition in the form of seller financing or other mechanisms such as
employment agreements, “earn-out” arrangements based on future earnings, and
consulting contracts. Although this source of financing can be used effectively to
finance all or part of an acquisition, it can result in a higher price tag or in
keeping the seller around after the transaction longer than they would prefer.
Consider using this source of financing as a component to bridge any gap
between seller’s and their price expectations.
Next look to their business to see if they can leveraged their company’s existing
assets and cash flow in the form of traditional bank financing to fund the
acquisition. Other sources of external financing can include acquisition loans
from commercial banks, subordinated debt/mezzanine financing from various
entities and equity financing from private firms or individuals. Commercial banks
provide senior debt at a low cost based upon tangible asset coverage and the
reliability of the historical cash flow generated by both company and the
acquisition target. Subordinated debt or mezzanine financing is a higher risk,
higher cost debt which is generally not covered by existing assets or cash flow
but is based on expectations for future cash flow generation and growth in the
company’s value. Borrowing costs can include interest rates that are much higher
than bank debt and an equity component.
Both commercial banks and subordinated debt/mezzanine financing
providers will set specific financial targets for their company that measure,
among other things, ongoing cash flow generation, their liquidity and debt
burden. Make sure that these do not conflict with each other and that they have a
15
comfortable cushion for any negative variance to their financial plan. Not being
able to adhere to these targets can be very expensive and cause their debt
providers to impose additional restrictions on company. Equity financing is
available from venture firms and private equity sources that expect the companies
they invest in to have strong performance that will yield significant returns within
a certain period of time. Equity providers, and to a lesser extent, subordinated
debt holders, expect to be directly involved with the management of their
company, and they will have to “dilute” their ownership position in exchange for
their investments. As a result, make sure these providers will be compatible
partners and that they share their vision for the future and that they provide some
added value in addition to their money.
The epidemic of corporate downsizing in the India has made owning a
business a more attractive proposition than ever before. As increasing numbers of
prospective buyers go aboard on the process of becoming independent business
owners, many of them voice a common concern: how do I finance the
acquisition?
Prospective buyers are aware that any credit crunch prevents the traditional
lending institution from being the likely solution to their needs. Where then, can
buyers turn for help with what is likely to be the largest single investment of their
lives? There are a variety of financing sources, and buyers can find one that fills
their particular requirements. For many businesses, the following are the best
routes to follow:
16
Best Routes:
Buyer's Personal Equity-
In most business acquisition situations, this is the place to begin. Typically,
anywhere from 20 to 50 percent of cash needed to purchase a business comes
from the buyer and his or her family. Buyers should decide how much capital
they are able to risk, and the actual amount will vary, of course, depending on the
specific business and the terms of the sale. But, on average, a buyer should be
prepared to come up with something between $25,000 and $150,000.
The dream of buying a business by means of a highly-leveraged transaction
( one requiring minimum cash ) must remain a dream and not a reality for most
buyers. The exceptions are those buyers who have special talents or skills sought
after by investors, those whose business will directly benefit jobs that are of local
public interest, or those whose businesses are expected to make unusually large
profits.
One of the major reasons personal equity financing is a good starting point
is that buyers who invest their own capital start the ball rolling--they are
positively influencing other possible investors or lenders to participate.
Seller Financing-
One of the simplest--and best--ways to finance the acquisition of a business is to
work hand-in-hand with the seller. The seller's willingness to participate will be
influenced by his or her own requirements: tax considerations as well as cash
needs.
In some instances, sellers are virtually forced to finance the sale of their
own business in order to keep the deal from falling through. Many sellers,
however, actively prefer to do the financing themselves. Doing so not only can
17
increase the chances for a successful sale, but can also be helpful in obtaining the
best possible price.
The terms offered by sellers are usually more flexible and more agreeable
to the buyer than those from a third-party lender. Sellers will typically finance 30
to 50 percent--or more--of the selling price, with an interest rate below current
bank rates and with a far longer amortization. The terms will usually have
scheduled payments similar to conventional loans; the tax picture, however, can
be better than with straight debt.
As with buyer-equity financing, seller financing can make the business
more attractive and viable to other lenders. In fact, sometimes outside lenders will
refuse to participate unless a large chunk of seller financing is already in place.
Venture Capital-
Venture capitalists have become more eager players in the financing of
independent businesses. Previously known for going after the high-risk, high-
profile brand-new business, they are becoming increasingly interested in
established, existing entities.
This is not to say that outside equity investors are lining up outside the buyer's
door, especially if the buyer is counting on a single investor to take on this kind
of risk. Professional venture capitalists will be less daunted by risk; however,
they will likely want majority control and will expect to make at least 30 percent
annual rate of return on their investment.
Small Business Administration-
Thanks to the Indian Small Business Administration Loan Guarantee Program,
favorable financing terms are available to business buyers. Similar to the terms of
18
typical seller financing, SBA loans have long amortization periods (ten years),
and up to 70 percent financing (more than usually available with the seller-
financed sale).
SBA loans are not, however, a given. The buyer seeking the loan must
prove stability of the business and must also be prepared to offer collateral--
machinery, equipment, or real estate. In addition, there must be evidence of a
healthy cash flow in order to insure that loan payments can be made. In cases
where there is adequate cash flow but insufficient collateral, the buyer may have
to offer personal collateral, such as his or her house or other property.
Over the years, the SBA has become more in tune with small business
financing. It now has a Lo-Doc program for loans under $100,000 that requires
only a minimum of paperwork. Another optimistic financing sign: more banks
are now being approved as SBA lenders.
Lending Institutions-
Banks and other lending agencies provide unsecured loans commensurate with
the cash available for servicing the debt. ("Unsecured" is a misleading term,
because banks and other lenders of this type will aim to secure their loans if the
collateral exists.) Those seeking bank loans will have more success if they have a
large net worth, liquid assets, or a reliable source of income. Unsecured loans are
also easier to come by if the buyer is already a favored customer or one
qualifying for the SBA loan program.
When a bank participates in financing a business sale, it will typically
finance 50 to 75 percent of the real estate value, 75 to 90 percent of new
equipment value, or 50 percent of inventory. The only intangible assets attractive
to banks are accounts receivable, which they will finance from 80 to 90 percent.
19
Although the terms may sound attractive, most business buyers are unwise to
look toward conventional lending institutions to finance their acquisition. By
some estimates, the rate of rejection by banks for business acquisition loans can
go higher than 80 percent.
With any of the acquisition financing options, buyers must be open to
creative solutions, and they must be willing to take some risks. Whether the route
finally chosen is personal, seller, or third-party financing, the well-informed
buyer can feel confident that there is a solution to that big acquisition question.
Financing, in some form, does exist out there.
Leveraged Finance
Leveraged finance is funding a company or business unit with more debt than
would be considered normal for that company or industry. More-than-normal
debt implies that the funding is riskier, and therefore more costly, than normal
borrowing. As a result, levered finance is commonly employed to achieve a
specific, often temporary, objective: to make an acquisition, to effect a buy-out,
to repurchase shares or fund a one-time dividend, or to invest in a self-sustaining
cash-generating asset.
Although different banks mean different things when they talk leveraged finance,
it generally includes two main products - leveraged loans and high-yield bonds.
Leveraged loans, which are often defined as credits priced 125 basis points or
more over the London inter bank offered rate, are essentially loans with a high
rate of interest to reflect a higher risk posed by the borrower. High-yield or junk
bonds are those that are rated below "investment grade," i.e. less than triple-B.
A key instrument is much leveraged finance, particularly in leveraged buy-
outs, is mezzanine or "in between" debt. Mezzanine debt has long been used by
mid-cap companies in Europe and the US as a funding alternative to high yield
bonds or bank debt. The product ranks between senior bank debt and equity in a
20
company's capital structure, and mezzanine investors take higher risks than bond
buyers but are rewarded with equity-like returns averaging between 15 and 20 per
cent.
Companies that are too small to tap the bond market have been the
traditional users of mezzanine debt, but it is increasingly being used as part of the
financing package for larger leveraged acquisition deals. Although mezzanine has
been more expensive for companies to use than junk bonds, the low coupons
coupled with high returns often makes some sort of mezzanine or hybrid debt an
essential buffer between senior lenders and the equity investors.
Leveraged Acquisition Finance
Leveraged Acquisition Finance is the provision of bank loans and the issue of
high yield bonds to fund acquisitions of companies or parts of companies by an
existing internal management team (a management buy-out), an external
management team (a management buy-in) or a third party (an acquisition).
The leverage of a transaction refers to the ratio of debt capital (bank loans and
bonds) to equity capital (money invested in the shares of the target company). In
a leveraged financing, this ratio is unusually high. As a result, the level of debt
service (payment of interest and repayment of principal) absorbs a very large part
of the cash flow produced by the business. Consequently, the risk of the company
not being able to service the debt is higher and thus the position of the lenders is
riskier than in a conventional acquisition. The interest rate on the debt will be
high.
Leveraged Recapitalizations-
A technique where by a public company takes on significant additional debt with
the purpose of either paying an extraordinary dividend or repurchasing shares,
leaving the public shareholders with a continuing interest in a more financially-
21
leveraged company. This is often used as a "shark repellant" to ward off a hostile
takeover.
Leveraged Corporate Credit-
Leveraged corporate credit involves the provision and management of credit
products, including bank loans, bridge loans and high-yield debt, for below
investment grade companies that rely heavily on debt financing.
Leveraged Asset-Based Finance-
Leveraged asset-based finance entails raising debt capital for companies where
the physical assets or a defined, contractual cash flow form the basis for highly
levered non- or limited-recourse funding of assets or projects. Leasing, project
financing and whole business securitization are examples of these techniques.
Leveraged finance, like other parts of structured finance, primarily
involves identifying, analyzing and solving risks. These risks can be arranged
into the following groups:
Credit risks and financial risks-
Credit risks are concerned with the business and its market. Financial risks which
lie within the economy as a whole, for instance, interest rates, foreign exchange
rates and tax rates.
Structural risks-
These are risks created by the actual provision of finance including legal,
documentation and settlement risks.
22
There are often different layers of finance involved in leveraged financing. These
range from a senior secured bank loan or bond to a subordinated loan or bond. A
large part of the role of leveraged financiers is to calculate how each type of
finance should be raised. If they overestimate the ability of the company to
service its debt, they may lend too much at a low margin and be left holding loans
or bonds they cannot sell to the market. If the value of the company is
underestimated, the deal may be lost.
Management buyout-
A management buyout (MBO) is a form of acquisition where a company's
existing managers acquire a large part or all of the company.
Management buyouts are similar in all major legal aspects to any other
acquisition of a company. The particular nature of the MBO lies in the position of
the buyers as managers of the company and the practical consequences that
follow from that. In particular, the due diligence process is likely to be limited as
the buyers already have full knowledge of the company available to them. The
seller is also unlikely to give any but the most basic warranties to the
management, on the basis that the management know more about the company
than the sellers do and therefore the sellers should not have to warrant the state of
the company.
In many cases the company will already be a private company, but if it is
public then the management will take it private
The Purpose of an MBO-
The purpose of such a buyout from the managers' point of view may be to save
their jobs, either if the business has been scheduled for closure or if an outside
purchaser would bring in its own management team. They may also want to
23
maximize the financial benefits they receive from the success they bring to the
company by taking the profits for themselves. This is often a way to ward off
aggressive buyers.
Financing a Management Buyout
Debt Financing-
The management of a company will not usually have the money available to buy
the company outright themselves. They would first seek to borrow from a bank,
provided the bank was willing to accept the risk. Management buyouts are
frequently seen as too risky for a bank to finance the purchase through a loan.
Private Equity Financing-
If a bank is unwilling to lend, the management will commonly look to private
equity investors to fund the majority of buyout. A high proportion of
management buyouts are financed in this way. The private equity investors will
invest money in return for a proportion of the shares in the company, though they
may also grant a loan to the management. The exact financial structuring will
depend on the backer's desire to balance the risk with its return, with debt being
less risky but less profitable than capital investment.
Although the management may not have resources to buy the company,
private equity houses will require that the managers each make as large an
investment as they can afford in order to ensure that the management are locked
in by an overwhelming vested interest in the success of the company. It is
common for the management re-mortgage their houses in order to acquire a small
percentage of the company.
Private equity backers are likely to have somewhat different goals to the
management. They generally aim to maximize their return and make an exit after
24
3-5 years while minimizing risk to themselves, whereas the management rarely
look beyond their careers at the company and will take a long-term view.
While certain aims do coincide - in particular the primary aim of profitability -
certain tensions can arise. The backers will invariably impose the same warranties
on the management in relation to the company that the sellers will have refused to
give the management. This "warranty gap" means that the management will bear
all the risk of any defects in the company that affects its value.
As a condition of their investment, the backers will also impose numerous
terms on the management concerning the way that the company is run. The
purpose is to ensure that the management run the company in a way that will
maximize the returns during the term of the backers' investment, whereas the
management might have hoped to build the company for long-term gains.
Though the two aims are not always incompatible, the management may feel
restricted.
Vendor Financing-
In certain circumstances it may be possible for the management and the original
owner of the company to agree a deal whereby the seller finances the buyout. The
price paid at the time of sale will be nominal, with the real price being paid over
the following years out of the profits of the company. The timescale for the
payment is typically 3-7 years.
This represents a disadvantage for the vendor, which must wait to receive
its money after it has lost control of the company. It is also dependent on the
returned profits being increased significantly following the acquisition, in order
for the deal to represent a gain to the seller in comparison to the situation pre-
sale. This will usually only happen in very particulate circumstances.
25
The vendor may nevertheless agree to vendor financing for tax reasons, as the
consideration will be classified as income rather than a capital gain. It may also
receive some other benefit such as a higher overall purchase price than would be
obtained by a normal purchase.
The advantage for the management is that they do not need to become involved
with private equity or a bank and will be left in control of the company once the
consideration has been paid.
Management buy-in-
A management buy in (MBI) occurs when a manager or a management team
from outside the company raises the necessary finance, buys it and becomes the
company's new management. A management buy-in team often competes with
other purchasers in the search for a suitable business. Usually, the team will be
led by a manager with significant experience at managing director level. The
difference to a management buy-out is in the position of the purchaser: in the case
of a buy-out, they are already working for the company. In the case of a buy-in,
however, the manager or management team is from another source
Initial public offering-
An initial public offering (IPO) is the first sale of a corporation's common shares
to public investors. The main purpose of an IPO is to raise capital for the
corporation. While IPOs are effective at raising capital, they also impose heavy
regulatory compliance and reporting requirements. The term only refers to the
first public issuance of a company's shares; any later public issuance of shares is
referred to as a Secondary Market Offering. A shareholder selling its existing
(rather than shares newly issued to raise capital) shares to public on the Primary
Market is an Offer for Sale
26
Procedure-
IPOs generally involve one or more investment banks as "underwriters." The
company offering its shares, called the "issuer," enters a contract with a lead
underwriter to sell its shares to the public. The underwriter then approaches
investors with offers to sell these shares.
The sale (that is, the allocation and pricing) of shares in an IPO may take several
forms. Common methods include:
Dutch auction
Firm commitment
Best efforts
Bought deal
Self Distribution of Stock
A large IPO is usually underwritten by a "syndicate" of investment banks led by
one or more major investment banks (lead underwriter). Upon selling the shares,
the underwriters keep a commission based on a percentage of the value of the
shares sold. Usually, the lead underwriters, i.e. the underwriters selling the largest
proportions of the IPO, take the highest commissions—up to 8% in some cases.
Multinational IPOs may have as many as three syndicates to deal with differing
legal requirements in both the issuer's domestic market and other regions. (e.g.,
an issuer based in the E.U. may be represented by the main selling syndicate in its
domestic market, Europe, in addition to separate syndicates or selling groups for
US/Canada and for Asia. Usually the lead underwriter in the main selling group
is also the lead bank in the other selling groups.)Because of the wide array of
legal requirements, IPOs typically involve one or more law firms with major
practices in securities law, such as the Magic Circle firms of London and the
white shoe firms of New York City.
27
Usually the offering will include the issuance of new shares, intended to raise
new capital, as well the secondary sale of existing shares. However, certain
regulatory restrictions and restrictions imposed by the lead underwriter are often
placed on the sale of existing shares.
Public offerings are primarily sold to institutional investors, but some
shares are also allocated to the underwriters' retail investors. A broker selling
shares of a public offering to his clients is paid through a sales credit instead of a
commission. The client pays no commission to purchase the shares of a public
offering, the purchase price simply includes the built in sales credit.
The issuer usually allows the underwriters an option to increase the size of the
offering by up to 15% under certain circumstance known as over-allotment
option.
Leveraged buyout-
A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or
"bootstrap" transaction) occurs when a financial sponsor gains control of a
majority of a target company's equity through the use of borrowed money or debt.
A leveraged buyout is a strategy involving the acquisition of another company
using a significant amount of borrowed money (bonds or loans) to meet the cost
of acquisition. Often, the assets of the company being acquired are used as
collateral for the loans, in addition to the assets of the acquiring company. The
purpose of leveraged buyouts is to allow companies to make large acquisitions
without having to commit a lot of capital. In an LBO, there is usually a ratio of
70% debt to 30% equity.
In the industry's infancy in the late 1960s the acquisitions were called
"bootstrap" transactions, and were characterized by Victor Posner's hostile
takeover of Sharon Steel Corp. in 1969. The industry was conceived by people
28
like Jerome Kohlberg, Jr. while working on Wall Street in the 1960s and 1970s,
and pioneered by the firm he helped found with Henry Kravis, Kohlberg Kravis
Roberts & Co. (KKR).
KKR is credited by Harvard Business School as completing what is
believed to be the first leveraged buyout in business history, through the
acquisition of Orkin Exterminating Company in 1964. However, the first LBO
may have been the purchase by McLean Industries, Inc. of Waterman Steamship
Corporation in May 1955. Under the terms of that transaction, McLean borrowed
$42 million and raised an additional $7 million through issue of preferred stock.
When the deal closed, $20 million of Waterman cash and assets were used to
retire $20 million of the loan debt. The newly elected board of Waterman then
voted to pay an immediate dividend of $25 million to McLean Industries. [1]
A special case of such acquisition is a management buyout (MBO), which occurs
when a company's managers buy or acquire a large part of the company. The goal
of an MBO may be to strengthen the managers' interest in the success of the
company. In most cases, the management will then take the company private.
MBOs have assumed an important role in corporate restructurings beside mergers
and acquisitions. Key considerations in an MBO are fairness to shareholders,
price, the future business plan, and legal and tax issues.
A leveraged balance sheet has a small portion of equity capital and
therefore a large portion of loan capital. The return (profit) of the firm will be
"leveraged" to the equity capital and produce a large return on equity (ROE) for
the owners risking their money.
Typically, the loan capital is borrowed through a combination of
prepayable bank facilities and/or public or privately placed bonds, which may be
classified as high-yield debt, also called junk bonds. Often, the debt will appear
on the acquired company's balance sheet and the acquired company's free cash
flow will be used to repay the debt.
29
The purposes of debt financing for leveraged buyouts are two-fold:
The use of debt increases (leverages) the financial return to the private equity
sponsor. Under the Modigliani-Miller theorem,[2] the total return of an asset to
its owners, ceteris paribus and within strict restrictive assumptions, is unaffected
by the structure of its financing. As the debt in an LBO has a relatively fixed,
albeit high, cost of capital, any returns in excess of this cost of capital flow
through to the equity.
The tax shield of the acquisition debt, according to the Modigliani-Miller
theorem with taxes, increases the value of the firm. This enables the private
equity sponsor to pay a higher price than would otherwise be possible. Because
income flowing through to equity is taxed, while interest payments to debt are
not, the capitalized value of cash flowing to debt is greater than the same cash
stream flowing to equity.
Historically, many LBOs in the 1980s and 1990s focused on reducing
wasteful expenditures by corporate managers whose interests were not aligned
with shareholders. After a major corporate restructuring, which may involve
selling off portions of the company and severe staff reductions, the entity would
likely be producing a higher income stream. Because this type of management
arbitrage and easy restructuring has largely been accomplished, LBO’s today
(2006) focus more on growth and complicated financial engineering to achieve
their returns. Most leveraged buyout firms look to achieve an internal rate of
return in excess of 20%.
Mergers and Acquisitions: Valuation Matters
Investors in a company that is aiming to take over another one must determine
whether the purchase will be beneficial to them. In order to do so, they must ask
themselves how much the company being acquired is really worth.
30
Naturally, both sides of an M&A deal will have different ideas about the worth of
a target company: its seller will tend to value the company at as high of a price as
possible, while the buyer will try to get the lowest price that he can. There are,
however, many legitimate ways to value companies. The most common method
is to look at comparable companies in an industry, but deal makers employ a
variety of other methods and tools when assessing a target company. Here are just
a few of them:
1. Comparative Ratios - The following are two examples of the many
comparative metrics on which acquiring companies may base their offers:
Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an
acquiring company makes an offer that is a multiple of the
earnings of the target company. Looking at the P/E for all the
stocks within the same industry group will give the acquiring
company good guidance for what the target's P/E multiple should
be.
Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio,
the acquiring company makes an offer as a multiple of the
revenues, again, while being aware of the price-to-sales ratio of
other companies in the industry.
2. Replacement Cost - In a few cases, acquisitions are based on the cost of
replacing the target company. For simplicity's sake, suppose the value of a
company is simply the sum of all its equipment and staffing costs. The
acquiring company can literally order the target to sell at that price, or it
will create a competitor for the same cost. Naturally, it takes a long time to
assemble good management, acquire property and get the right equipment.
This method of establishing a price certainly wouldn't make much sense in
a service industry where the key assets - people and ideas - are hard to
value and develop.
31
3. Discounted Cash Flow (DCF) - A key valuation tool in M&A, discounted
cash flow analysis determines a company's current value according to its
estimated future cash flows. Forecasted free cash flows (operating profit +
depreciation + amortization of goodwill – capital expenditures – cash taxes
- change in working capital) are discounted to a present value using the
company's weighted average costs of capital (WACC). Admittedly, DCF is
tricky to get right, but few tools can rival this valuation method.
32
Original Cases Of mergers-
Now with the following three cases I will discuss the synergies for the mergers.
I. Hindalco - Novelis acquisition
II. Reliance Industries Ltd. & Reliance Petroleum Merger
III. Arcelor - Mittal steel merger.
IV. Tata-Corus steel merger.
V. Hutch Vodafone Telecom merger.
33
1. HINDALCO - NOVELIS ACQUISITION
Aluminium and copper major Hindalco Industries, the Kumar Mangalam Birla-
led Aditya Birla Group flagship, acquired Canadian company Novelis Inc in a $6-
billion, all-cash deal in February 2007.
Till date, it is India's third-largest M&A deal.
The acquisition would make Hindalco the global leader in aluminium rolled
products and one of the largest aluminium producers in Asia. With post-
acquisition combined revenues in excess of $10 billion, Hindalco would enter the
Fortune-500 listing of world's largest companies by sales revenues.
Aditya Birla Group's Hindalco Industries Limited, India's largest non-
ferrous metals company, and Novelis Inc. (NYSE: NVL) (TSX: NVL), the
world's leading producer of aluminium rolled products, today announced that
they have entered into a definitive agreement for Hindalco to acquire Novelis in
an all-cash transaction which values Novelis at approximately US$6 billion,
including approximately US $2.40 billion of debt. Under the terms of the
agreement, Novelis shareholders will receive US $44.93 in cash for each
outstanding common share.
Based in Mumbai, India, Hindalco is a leader in Asia's aluminium and
copper industries, and is the flagship company of the Aditya Birla Group, a $12
billion multinational conglomerate, with a market capitalisation in excess of $20
billion. Following the transaction Hindalco, with Novelis, will be the world's
largest aluminium rolling company, one of the biggest producers of primary
aluminium in Asia, and India's leading copper producer.
Mr. Kumar Mangalam Birla, Chairman of the Aditya Birla Group, said,
"The acquisition of Novelis is a landmark transaction for Hindalco and our
Group. It is in line with our long-term strategies of expanding our global presence
34
across our various businesses and is consistent with our vision of taking India to
the world. The combination of Hindalco and Novelis will establish a global
integrated aluminium producer with low-cost alumina and aluminium production
facilities combined with high-end aluminium rolled product capabilities. The
complementary expertise of both these companies will create and provide a
strong platform for sustainable growth and ongoing success."
Acting Chief Executive Officer of Novelis, Mr. Ed Blechschmidt, said,
"After careful consideration, the Board has unanimously agreed that this
transaction with Hindalco delivers outstanding value to Novelis shareholders.
Hindalco is a strong, dynamic company. The combination of Novelis' world-class
rolling assets with Hindalco's growing primary aluminium operations and its
downstream fabricating assets in the rapidly growing Asian market is an exciting
prospect. Hindalco's parent, the Aditya Birla Group, is one of the largest and
most respected business groups in India, with growing global activities and a
long-term business view."
Mr. Debu Bhattacharya, Managing Director of Hindalco and Director of
Aditya Birla Management Corporation Ltd., said, "There are significant
geographical market and product synergies. Novelis is the global leader in
aluminum rolled products and aluminum can recycling, with a global market
share of about 19 per cent. Hindalco has a 60 per cent share in the currently small
but potentially high-growth Indian market for rolled products. Hindalco's position
as one of the lowest cost producers of primary aluminium in the world is
leverageable into becoming a globally strong player. The Novelis acquisition will
give us immediate scale and a global footprint."
The transaction has been unanimously approved by the Boards of Directors
of both companies. The closing of the transaction is not conditional on Hindalco
obtaining financing.
35
The transaction will be completed by way of a plan of arrangement under
applicable Canadian law. It will require the approval of 66.66 per cent of the
votes cast by shareholders of Novelis Inc. at a special meeting to be called to
consider the arrangement followed by court approval. The closing of the
transaction will also be subject to customary conditions including regulatory
approvals, and is expected to be completed during the second quarter of 2007
Mergers and Acquisitions have been the part of inorganic growth strategy of
corporate worldwide. Post 1991 era witnessed growing appetite for takeovers by
Indian corporate also across the globe as a part of their growth strategy. This
series of acquisitions in metal industry was initiated by acquisition of Arcelor by
Mittal followed by Corus by Tata’s. Indian aluminium giant Hindalco extended
this process by acquiring Atlanta based company Novelis Inc, a world leader in
aluminium rolling and flat-rolled aluminium products. Hindalco Industries Ltd.,
acquired Novelis Inc. to gain sheet mills that supply can makers and car
companies. Strategically, the acquisition of Novelis takes Hindalco onto the
global stage as the leader in downstream aluminium rolled products. The
acquisition of Novelis by Hindalco bodes well for both the entities. Novelis,
processes primary aluminium to sell downstream high value added products. This
is exactly what Hindalco manufactures. This makes the marriage a perfect fit.
Currently Hindalco, an integrated player, focuses largely on manufacturing
alumina and primary aluminium. It has downstream rolling, extruding and foil
making capacities as well, but they are far from global scale. Novelis processes
around 3 million tonnes of aluminium a year and has sales centers all over the
world. In fact, it commands a 19% global market share in the flat rolled products
segment, making it a leader.
Hindalco has completed this acquisition through its wholly-owned
subsidiary AV Metals Inc and has acquired 75.415 common shares of Novelis,
representing 100 percent of the issued and outstanding common shares AV
Metals Inc transferred the common shares of Novelis to its wholly-owned
36
subsidiary AV Aluminium Inc. The deal made Hindalco the world's largest
aluminium rolling company and one of the biggest producers of primary
aluminium in Asia, as well as being India's leading copper producer. Hindalco
Industries Ltd has completed its acquisition of Novelis Inc under an agreement in
which Novelis will operate as a subsidiary of Hindalco.
About Novelis-
Novelis is the global leader in aluminium rolled products and aluminium can
recycling. The company operates in 11 countries, has approximately 12,500
employees and reported $8.4 billion in 2005 revenue. Novelis has the unrivaled
capability to provide its customers with a regional supply of technologically
sophisticated rolled aluminium products throughout Asia, Europe, North America
and South America. Through its advanced production capabilities, the company
supplies aluminium sheet and foil to the automotive and transportation, beverage
and food packaging, construction and industrial, and printing markets.
Visit- www.novelis.com
About the Aditya Birla Group
The Aditya Birla Group is India's first truly multinational corporation, with a
workforce of 85,000 employees belonging to over 20 different nationalities. Its
74 state-of-the-art manufacturing units and service facilities span India, Thailand,
Laos, Indonesia, Philippines, Egypt, Canada, Australia, China, USA, UK,
Germany, Hungary and Portugal. A premium conglomerate, the Aditya Birla
Group participates in wide range of market sectors including viscose staple fiber,
non-ferrous metals, cement, viscose filament yarn, branded apparel, carbon black,
37
chemicals, fertilizers, sponge iron, insulators, financial services, telecom, BPO
and IT services.
Visit- www.adityabirla.com
About Hindalco
Established in 1958, Hindalco is currently structured into two strategic
businesses, aluminium and copper, with 2006 revenues of approximately $2.6
billion. Hindalco's integrated operations and operating efficiency have positioned
the company as Asia's largest integrated primary producer of aluminium and
among the most cost-efficient producers globally. Its copper smelter is the
world's largest custom smelter at a single location. Hindalco stock is publicly
traded on the Bombay Stock Exchange (BSE) and the National Stock Exchange
of India Ltd (NSE). Its current market capitalisation is US$ 4.3 billion.
Visit- www.hindalco.com
IMPORTANT FACTS ABOUT DEAL-
Organic and inorganic both strategies have worked for companies worldwide. But
in the process of global expansions inorganic growth strategies has always been
the first preference for the companies globally. As a part of its inorganic growth
strategy of global expansion, the following points highlight the important points
about this acquisition of Hindalco for this acquisition:
The acquisition of Novelis by Hindalco was in an all-cash transaction,
which values Novelis at enterprise value of approximately US $6.0 billion,
including approximately US $2.4 billion of debt.
38
This merger of Novelis into Hindalco will establish a global integrated
aluminium producer with low-cost alumina and aluminium production
facilities combined with high -end aluminium rolled product capabilities.
After merger Hindalco will emerge as the biggest rolled aluminium
products maker and fifth -largest integrated aluminium manufacturer in the
world.
As Novelis is the global leader in aluminium rolled products and
aluminium can recycling, with a global market share of about 19%.
Hindalco has a 60% share in the currently small but potentially high-
growth Indian market for rolled products.
Hindalco's position as one of the lowest cost producers of primary
aluminium in the world is leverageable into becoming a globally strong
player. The Novelis acquisition will give the company immediate scale and
strong a global footprint.
Novelis is a globally positioned organization, operating in 11 countries
with approximately 12,500 employees. In 2005, the company reported net
sales of US $8.4 billion and net profit of US $90 million.
The company reported net sales of US $7.4 billion and net loss of US $170
million in nine months during 2006, on account of low contract prices.
Some of these contracts are expected to continue for next years also.
Novelis is expecting the full year loss to be US $263 million in 2006,
however the company is expecting to be in black with US $68 million
39
profit in 2007. The 7 total free cash flow is expected to be US $175 million
in 2006.
By January 1,2010, all the sales contracts will get expired and profitability
will increase substantially from then onwards.
Novelis will work as a forward integration for Hindalco as the company is
expected to ship primary aluminium to Novelis for downstream value
addition.
Novelis has a rolled product capacity of approximately 3 million tonne
while Hindalco at the moment is not having any surplus capacity of
primary aluminium.
Hindalco’s green field expansion will give it primary aluminium capacity
of approximately 1 million tonne, but this will take a minimum 3-4 years to
all the capacities to come into operation. Novelis profitability is adversely
related to aluminium prices and higher aluminium prices on LME in near
future can’t be ruled out. However, we expect the aluminium prices to be
softening in long term and this would be positive for Novelis.
Considering these factors, Hindalco’s profitability is expected to remain
under pressure and this will bounce back in 2009-10. The profitability will
be accretive only in 2010-11.
The debt component of Novelis stood at US $2.4 billion and additional US
$2.8 billion will be taken by Hindalco to finance the deal. This will put
tremendous pressure on profitability due to high interest burden.
40
Hindalco’s existing expansion will cost Rs. 25,000 crore and as a result
debt and interest burden of the company will increase further.
CRISIL has placed its outstanding long-term rating of ‘AAA/Stable’ on
Hindalco Industries Limited (Hindalco), on ‘Rating Watch with Negative
Implications’. The short term rating of ‘P1+’ has been reaffirmed. This
would lead to higher interest rate for the company.
FUNDING STRUCTURE FOR THE DEAL-
The funding structure of this deal is remarkably different from the leveraged buyout model that Tata Steel used to fund the Corus buy. The Tata’s are to buy 100 per cent of Corus’ equity for $12.1 billion. Only $4.1 billion of this is being raised by the Tata’s. The remaining $8 billion will be raised (as debt) and repaid on the strength of the Corus balance sheet. Effectively, the Tata’s are paying only a third of the acquisition price. This was possible because Corus had relatively low debt on its balance sheet and was able to borrow more. But that is not the case with Novelis. With a debt-equity ratio of 7.23:1, it can’t borrow any more. So, the Birlas were unable to do a leverage buyout. To buy the $3.6 billion worth of Novelis’s equity, Hindalco is now borrowing almost $2.85 billion (of the balance, $300 million is being raised as debt from group companies and $450 million is being mobilised from its cash reserves). That is almost a third of the Rs 2,500 crore net profit Hindalco may post in 2006-07. (It has reported a net profit of Rs 1,843 crore for the first three quarters of this year.) The second part of the deal is the $2.4-billion debt on Novelis’s balance sheet. Hindalco will have to refinance these borrowings, though they will be repaid with Novelis’s cash flows.
41
ISSUES AND DISCUSSION-
The case study attempts to analyze the financial and strategic implications of
this acquisition for the shareholders of hindalco. The case discusses the
acquisition of US-Canadian aluminium company Novelis by India-based
Hindalco Industries Limited (Hindalco), a part of Aditya 8 Vikram Birla
Group of Companies, in May 2007. The case explains the acquisition deal in
detail and highlights the benefits of the deal for both the companies.
Followings are the main issues to be discussed for critical review of this case:
what is strategic rationale for this acquisition?
Were the valuation for this Acquisition was correct?
what are financial Challenges for this Acquisition?
what is future outlook for this acquisition?
STRATEGIC RATIONALE FOR ACQUISITION-
This acquisition was a very good strategic move from Hindalco. Hindalco will be
able to ship primary aluminium from India and make value-added products.'' The
combination of Hindalco and Novelis establishes an integrated producer with
low-cost alumina and aluminium facilities combined with high-end rolling
capabilities and a global footprint. Hindalco’s rationale for the acquisition is
increasing scale of operation, entry into high—end downstream market and
enhancing global presence.
Novelis is the global leader (in terms of volume) in rolled products with annual
production capacity of 2.8 million tonnes and a market share of 19 per cent. It has
presence in 11 countries and provides sheets and foils to automotive and
transportation, beverage and food packaging, construction and industrial, and
printing markets. Hindalco’s rationale for the acquisition is increasing scale of
42
operation, entry into high—end downstream market and enhancing global
presence.
Acquiring Novelis will provide Aditya Birla Group's Hindalco with access to
customers such as General Motors Corp. and Coca-Cola Co. Indian companies,
fueled by accelerating domestic growth, are seeking acquisitions overseas to add
production capacity and find markets for their products. Tata Steel Ltd. spent US
$12 billion last month to buy U.K. steelmaker Corus Group Plc. Novelis has
capacity to produce 3 million tonne of flat- rolled products, while Hindalco has
220,000 tonne. ``This acquisition gives Hindalco access to higher-end products
but also to superior technology,'' Hindalco plans to triple aluminium output to 1.5
million metric tonne by 2012 to become one of the world's five largest producers.
The company, which also has interests in telecommunications, cement, metals,
textiles and financial services, is the world's 13th-largest aluminium maker. After
the deal was signed for the acquisition of Novelis, Hindalco's management issued
press releases claiming that the acquisition would further internationalize its
operations and increase the company's global presence. By acquiring Novelis,
Hindalco aimed to achieve its long-held ambition of becoming the world's
leading producer of aluminium flat rolled products. Hindalco had developed
long-term strategies for expanding its operations globally and this acquisition was
a part of it. Novelis was the leader in producing rolled products in the Asia-
Pacific, Europe, and South America and was the second largest company in North
America in aluminium recycling, metal solidification and in rolling technologies
worldwide. The benefits from this acquisition can be discussed under the
following points:
Post acquisitions, the company will get a strong global footprint.
After full integration, the joint entity will become insulated from the
fluctuation of LME Aluminium prices.
43
The deal will give Hindalco a strong presence in recycling of aluminium
business.As per aluminium characteristic, aluminium is infinitely
recyclable and recycling it requires only 5% of the energy needed to
produce primary aluminium.
Novelis has a very strong technology for value added products and its
latesttechnology ‘Novelis Fusion’ is very unique one.
It would have taken a minimum 8-10 years to Hindalco for building these
facilities, if Hindalco takes organically route.
As per company details, the replacement value of the Novelis is US $12
billion, so considering the time required and replacement value; the deal is
worth for Hindalco.
Novelis being market leader in the rolling business, has invested heavily in
developing various production technology. One of such technology is a fusion
technology that increases the formability of aluminium. This means that it can be
better used formed into the design requirement by the car companies. All raw
aluminium is processed so that it can be used in products. Fourty percent of the
products are rolled products and Novelis is in leader in rolling business with a
market share of 20%. Any change in the raw material price is directly passed on
to the customers who range from coca cola to automobile companies like Aston
martin. The current revenue of hindalco is very much dependent on the
aluminium prices and when the prices are high they make a larger margin, this
not the case with rolling business which usually has a constant margin. For
Hindalco to develop such technology will take a lot of time. According to
Standard and Poors it would take 10 years and $ 12 billion to build the 29 plants
that Novelis has with capacity of close to 3 million tonnes. The takeover of
Novelis provides Hindalco with access to the leading downstream aluminium
44
player in western markets. The purchase structurally shifts Hindalco from an
upstream aluminium producer to a downstream producer.
VALUATION FOR ACQUISITION-
The big concern is Novelis’s valuation. Analysts believe the Birlas are paying too
high a price for a company that incurred a loss of US $170 million for the nine
months ended 30 September 2006. In its latest guidance, the Novelis management
has indicated a loss of US $240 million- 285 million for the whole of 2006. Even
in 2005, when Novelis had made a US $90-million net profit, its share prices
never crossed US $30. Financial numbers show that novelis is not a good choice
by Hindalco at least at the price that they paid for the company. The immediate
effect of the merger is that Hindalco would achieve its target of doubling its
turnover to $ 20 billion three years in advance. Novelis fits well in the long term
strategy of Hindalco. Novelis is not a dying company looking for a savior,
Hindalco approached Novelis because they believed that Novelis can give them
some business advantage. So, why is Hindalco paying US $44.93 a share for a
loss-making company? In its guidance, the Novelis management has indicated a
pre-tax profit of US $35 million-100 million for 2007. Going by the optimistic
end of the guidance, the price Hindalco paid translates to a market
capitalization/profit before tax (PBT) multiple of 36 on Novelis’s 2007 forecast.
That appears to be high.
Hindalco has long held an ambition to become a leading (top 10) player across its
2 key business segments, aluminium and copper. The acquisition of Novelis
should achieve part of this goal by 10 propelling Hindalco to the world’s leading
producer of aluminium flat rolled products. With capacity of nearly 3.0 mt of flat
rolled aluminium products, Novelis takes Hindalco down the value chain to
become a downstream aluminium producer, versus its current upstream focus. At
a price of US $44.93/share and assuming US $2.4 bn of debt, Novelis is not
45
coming cheaply. Based on Novelis’ guidance and consensus forecasts for 2007,
we estimate that Hindalco is paying 11.4x EBITDA, 20.7x EBIT or 53.4x PE. At
a total enterprise value of US $ 6 billion, Novelis is nearly 50% larger than
Hindalco’s current market capitalization. The concern is the severity of the
earnings and value dilution that will result. Assuming synergies are minimal and
based on Novelis’ guidance for 2007; we calculate that Hindalco’s EPS will be
diluted by 18%. At Novelis long term annual free cash flow target of US $400m
(using a real WACC of 9%), we estimate the acquisition will destroy value by
INR60/share. To put it another way, we estimate Hindalco will need to improve
annual free cash flow by 35% to US $540m for the acquisition to be value (NPV)
neutral. Perhaps the greatest issue with the Novelis acquisition is Hindalco’s
balance sheet position post acquisition. Having already committed to significant
expansion projects, Novelis will push Hindalco’s high gearing levels even
further. We calculate that Hindalco’s gearing (ND/E) will reach 236%, with its
Net Debt / EBITDA ratio reaching over 5.0x. In our view, an equity raising is
highly possible in the short to medium term. For the nine-months to Sep06,
Novelis reported a loss of US $170m. A key factor behind the losses suffered in
2006 was price ceilings contracted to Novelis’ long-term can-making customers,
which impacted revenues by US $350m. Novelis believes that their exposure to
these types of contracts will reduce to a maximum of 10% of sales in 2007. While
this is comforting, we believe Novelis remains a challenging turnaround prospect.
Based on Novelis guidance for 2007 and assuming this is relevant to Hindalco’s
FY08 period, we calculate Hindalco’s EPS will be diluted by 18%.
FINANCIAL CHALLENGES FOR THE ACQUISITION-
The acquisition will expose Hindalco to weaker balance sheet. Besides the
company will move from high margin metal business to low—margin down
stream products business. The acquisition will more than triple Hindalco’s
revenues, but will increase the debt and erode its profitability. The deal will
46
create value only after the Hindalco’s expansion completion, and due to its highly
leveraged position, expansion plans may get affected. Some of the customers of
Novelis are significant to the company’s revenues, and that could be adversely
affected by changes in the business or financial condition of these significant
customers or by the loss of their business. (The company’s ten largest customers
accounted for approximately 40% of total net sales in 2005, with Rexam Plc and
its affiliates representing approximately 12.5% of company’s total net sales in
that year).
Novelis profitability could be adversely affected by the inability to pass through
metal price increases due to metal price ceilings in certain of the company’s sales
contracts. Adverse changes in currency exchange rates could negatively affect the
financial results and the competitiveness of company’s aluminium rolled products
relative to other materials. The Company’s agreement not to compete with Alcan
in certain end-use markets may hinder Novelis ability to take advantage of new
business opportunities. The end-use markets for certain of Novelis products are
highly competitive and customers are willing to accept substitutes for the
company products.
47
2. RELIANCE INDUSTRIES AND RELIANCE PETROLEUM
-MERGER
Merger is India’s largest ever
RPL shareholders to receive 1 (one) share of RIL for every 16 (sixteen)
shares of RPL
RIL’s holding in RPL to be cancelled. No fresh treasury stock created
RIL to be a top 10 private sector refining company globally
RIL to become the world’s largest producer of Ultra Clean Fuels at single
location
Merger to unlock greater efficiency from scale and synergies
Merger to be EPS accretive
RIL to have 3.7 million shareholders
The Boards of Directors of Reliance Industries Limited (RIL) and Reliance
Petroleum Limited (RPL) today unanimously approved RPL’s merger with
RIL, subject to necessary approvals. The exchange ratio recommended by
both boards is 1 (one)share of RIL for every 16 (sixteen) shares of RPL. RIL
will issue 6.92 crores new shares, thereby increasing its equity capital to Rs
1,643 crore.
Reliance Industries Limited-
Reliance Industries Limited (RIL) is India's largest private sector company on all
major financial parameters with a turnover of Rs. 1,39,269 crore (US$ 34.7
billion), cash profit of Rs. 25,205 crore (US$ 6.3 billion), net profit (excluding
exceptional income) of Rs. 15,261 crore (US$ 3.8 billion) and net worth of Rs.
81,449 crore (US$ 20.3 billion) as of March 31, 2008.
48
RIL is the first private sector company from India to feature in the Fortune
Global 500 list of 'World's Largest Corporations' and ranks 103rd amongst the
world's Top 200 companies in terms of profits. RIL is amongst the 30 fastest
climbers ranked by Fortune. RIL features in the Forbes Global list of the world's
400 best big companies and in the FT Global 500 list of the world's largest
companies. RIL ranks amongst the 'Worlds 25 Most Innovative Companies' as
per a list compiled by the US financial publication-Business Week in
collaboration with the Boston Consulting Group.
Reliance Petroleum Limited-
Reliance Petroleum Limited (RPL) is a subsidiary of Reliance Industries Limited.
RPL is setting up a green field petroleum refinery and polypropylene plant in a
Special Economic Zone at Jamnagar in Gujarat. With an annual crude processing
capacity of 580,000 barrels per stream day (BPSD), RPL will be the sixth largest
refinery in the world.
Reasons to buy-
• Plan your business strategies by understanding your competitors' deal
making approach, acquisition trends and market entry/expansion strategies;
• Identify the latest consolidation trends in the market(s) you compete in;
• Exploit Mergers and Acquisitions opportunities by understanding the
strategic rationale and success factors behind each deal; and
• Design your inorganic strategies by screening potential acquisition
prospects in the markets
49
Merger Benefits and Synergies:
The merger will unlock significant operational and financial synergies that
exist between RIL and RPL. It creates a platform for value-enhancing growth
and reinforces RIL’s position as an integrated global energy company.
The merger will enhance value for shareholders of both companies. The
merger is EPS accretive for RIL. Through this merger, RIL consolidates a world-
class, complex refinery with minimal residual project risk, while complementing
RIL’s product range. There will be further gains from reduced operating costs
arising from synergies of a combined operation.
The merger will result in RIL:
Operating two of the world’s largest, most complex refineries
Owning 1.24 million barrels per day (MBPD) of crude processing capacity,
the largest refining capacity at any single location in the world
Emerging as the world’s 5th largest producer of Polypropylene
Merger Details:
Under the terms of the proposed merger, RPL shareholders will receive 1
(one) share of RIL for every 16 (sixteen) RPL shares held by them.
The appointed date of merger of RPL with RIL is 1st April 2008.
RIL will cancel its holding in RPL.
50
Based on the recommended merger ratio, RIL will issue 6.92 crore new
equity shares to the existing shareholders of RPL. This will result in a 4.4%
increase in equity base from
Rs 1,574 crore to Rs 1,643 crore. Consequently, the promoter holding in
RIL will reduce from 49.0% to 47.0%
Integrating businesses. The RIL-RPL merger had been widely expected for
some time. The Ambanis had quashed rumours about it in June 1998, but market
players always believed that a merger was only a matter of time. They were
proved right. With operations stabilising at RPL, the next logical step was to
merge it with the parent company, to realise the benefits of cost-efficiency and
cash in on productivity gains that come from integration.
By bringing RPL into its fold, the entire group’s interests in the oil sector
have been consolidated under RIL. The company has made a successful
beginning in exploration and production of crude oil. It currently has interests in
25 oil and gas blocks and is expected to spend $350 million (around Rs 1,700
crore) on oil exploration and production activities over the next three years. The
company expects to begin drilling operations at its well in the Krishna Godavari
basin next month. RIL has always had a dominating presence in petrochemicals,
a downstream area. All that the company needed for complete integration was a
refinery. The merger of RPL fills that gap.
Well-timed merger- RPL’s 27 mtpa refinery at Jamnagar is Asia’s largest
refinery and the fifth largest at a single site. It is also highly cost-efficient–its
capital cost of Rs 14,250 crore is about 30 per cent less than that of any
comparable refinery set up elsewhere in Asia. The high level of sophistication of
51
the unit makes possible greater levels of value-addition and ensures higher
refining margins than most of RPL’s peers.
The refinery’s huge size and low capital cost gives RPL a substantial edge
over its domestic competitors like IOC, HPCL and BPCL. These companies have
the advantage of their large retail networks, but it won’t be long (three years at
most) before RPL has an extensive network of its own.
Given these cost advantages and growth prospects, it made sense for the
group to merge RPL into RIL, which consumes about a third of the former’s
output. This makes RIL an even more formidable petrochemical company. It also
aligns its business model with that of its peers like BP-Amoco, ExxonMobil and
Shell, which have integrated upstream (oil exploration and production) and
downstream (petrochemicals) operations. The merged entity will save on sales
tax that RPL currently pays on the output sold–estimated at Rs 7,500 crore–to
RIL. The merger will also effectively put to rest any controversies regarding
transfer pricing between the two companies.
Strengthening financials- There are other clear benefits that arise from the
merger. The merged entity will have formidable financial muscle which the group
needs to tap into emerging opportunities in a deregulated petroleum sector. It will
also help the company challenge the might of a bigger IOC following its
acquisition of IBP
In the immediate future, RIL will look to use its enhanced financial
strength to bid for the government’s stake in BPCL and HPCL, slated for
divestment in June. It is estimated that a buyer would have to shell out around Rs
4,000 crore for a controlling stake in each PSU. It is imperative for Reliance to
grab one of the two oil marketing companies on the divestment block, as this is
its last chance to acquire a readymade distribution network.
52
At present, RPL sells almost half of its produce to oil PSUs; the balance is
exported or sold to RIL. It is currently at the mercy of these PSUs to sell its
produce in the domestic market. An established marketing network, like that of
BPCL and HPCL, will enable it to make greater sales in the domestic retail
market (where the margins are higher than in exports)–at more favourable terms.
It also has the option to set up its own network, but this will be relatively more
expensive–the cost of setting up a countrywide retail network is estimated at Rs
8,000 crore–and time-consuming. Besides, a delay would allow the competition
to steal a march.
Reliance also has ambitious plans for other sectors, among them biotech,
telecom and power, for which it requires enormous amounts of cash. Take the
group’s telecom foray, for which it needs around Rs 25,000 crore. Group
company Reliance Infocom–in which Reliance has a 45 per cent stake–is setting
up a broadband backbone connecting 186 cities in the country. In telephony,
Reliance, through its 26 per cent subsidiary Reliance Telecom, has licences for 18
basic circles and four cellular circles. The post-merger RIL’s strong cash flows
will make it far easier to fund these ventures through internal accruals, or new
loans if need be. The proposal to divest 12 per cent of the merged entity’s equity
held by Reliance associate companies to overseas investors could help it rake in
around Rs 5,400 crore. This would further improve the company’s financial
position.
Advantage to shareholder-
There is a school of thought that believes that RPL shareholders have been given
the short shrift. The swap ratio was set at 1:11–one share of RIL for 11 shares of
RPL. On the face of it, the swap ratio seems to favour RIL shareholders. A
valuation on the basis of book value and earnings per share would have meant a
53
swap ratio of 1:9. However, the final swap ratio appears to go beyond mere
quantitative aspects–rightly so–and factors in RIL’s range of strengths: the
relative stability of RIL’s earnings vis-a-vis the significant risks that RPL’s
earnings are exposed to in the deregulated environment, RIL’s strong balance
sheet, its dominant market share in fibres (50 per cent) and plastics (53 per cent),
and its huge investments in telecom, oil and power sectors.
The merger, which comes into effect from 1 April 2001, will catapult RIL into
the global big league of energy players, alongside ExxonMobil, BP-Amoco and
Shell. The only other Indian company in the list of the world’s top 500 (Fortune
500) is IOC, which is also an energy player and RIL’s principal competitor at
home.
The merger also makes RIL India’s largest private sector company by sales,
profits, net worth, assets and exports. At current prices, the new-look RIL will be
the second-largest Indian company by market capitalisation (after Hindustan
Lever), with a market cap that exceeds that of the three oil marketing PSUs put
together (See sideshow: Holding its own). Truly, "India’s World-Class
Corporation.
54
3.Arcelor-Mittal steel merger.
Mittal Steel Company - is the world's largest steel producer by volume, and also
the largest in turnover. CEO Lakshmi Mittal's family owns 88% of the company.
Mittal Steel is based in Rotterdam but is managed from London by Mittal and his
son Aditya. It was formed when Ispat International N.V. acquired LNM Holdings
N.V. (both were already controlled by Lakshmi Mittal) and merged with
International Steel Group Inc. (the remnants of Bethlehem Steel, Republic Steel
and LTV Steel) in 2005. On 25 June 2006, Mittal Steel decided to merge with
Arcelor, with the new company to be called Arcelor Mittal. The merger has been
successfully approved by shareholders and directors of Arcelor making L.N.
Mittal the largest steel maker in the world. In October 2005 Mittal Steel acquired
Ukrainian steel manufacturer Kryv or izhstal for $4.8 billion in an auction after a
controversial earlier sale for a much lower price to a consortium including the
son-in-law of ex-President Leonid Kuchma was cancelled by the incoming
government of President Viktor Yushchenko.
International Steel Group - Introduction
55
International Steel Group is a steel company headquartered in Cleveland, Ohio.
In 2004 it was ranked at no. 426 on the Fortune 500. It was created after the turn
around fund, WL Ross & Co. LLC, purchased LTV Integrated Steel Assets in
February 2002.
History of International Steel Group:
2002 - ISG purchased the assets of Acme Steel and LTV's integrated steel assets.
2003 - ISG acquired the Bethlehem Steel Corporation and U.S. Steel’s Gary plate mill.
2004 - ISG purchased the assets of Weirton Steel, Georgetown Steel, and HBI's facility in Trinidad and Tobago.
2005 - Completed merger with Mittal Steel on April 5.
Ispat International - Ispat International is a steel producing company with
operations in Mexico, Trinidad, Canada, Germany & Ireland. The company is
specialized in the integrated mini-mill process and has a wide range of flat & long
steel products, including slabs & wire rods.
In 2005 Lakshmi Mittal flew into Jharkhand, India to announce a $9 billion investment to build a green field steel plant with a 12 million tonnes per annum production capacity.
COMMENT – Mittal steel had searched the potential of having stel industry in india because of high demand of steel in India. Also near to Kyonjar district he is expected to get a iron & coal mines at cheap lease rentals. From there it expected to get ore for 150 years.
On 27 January 2006 it announced a $23.3 billion bid for Arcelor. On 19 May
2006 Mittal increased its offer for Arcelor by 38.7% to $32.4bn, or $47.34 per
share. On 25 June 2006 Arcelor, in a board meeting announced that it has
accepted a further sweetened offer per share and the new company would now be
called Arcelor-Mittal, thus successfully ending one of the most controversial and
publicized takeover bids in modern corporate history. Arcelor-Mittal is now by
56
far the largest steelmaker in the world by turnover as well as volume, controlling
10% of the total world steel output.
In August 2005 Global Steel Holdings Limited (GSHL) acquired Bulgarian Finmetals holding, which owned 71% of largest Bulgarian metallurgical plant - Kremikovtzi. Though many media (including Forbes) have announced this as a Mittal Steel company, it is not. GSHL is owned by Ispat Industries, whose ultimate owner is Pramod Mittal - Lakshmi Mittal's brother.
COMMENT – The Mittal has stake in his brother’s firm in Bulgaris where he can sell the products of arcelor and his own company. Later on in future he can also buy all the shares and can acquire the whole company. So, indirectly he has presence in Bulgaria.
History
1989: Acquisition of Iron & Steel Company of Trinidad & Tobago 1992: Acquisition of Sibalsa 1994: Acquisition of Sidbec-Dosco 1995: Acquisitions of Hamburger Stahlwerke, which formed Ispat
International Ltd. and Ispat Shipping, and Karmet 1997: Ispat International NV goes public 1998: Acquisition of Inland Steel Company 1999: Acquisition of Unimétal 2001: Acquisitions of ALFASID and Sidex 2002: Business assistance agreement signed with Iscor 2003: Acquisition of Nova Hut 2004: Acquisitions of Polskie Huty Stali, BH Steel, Macedonian facilities
from Balkan Steel. Creation of Mittal Steel 2005: Hire Deloitte as the primary auditors for the company 2005: Acquisition of International Steel Group 2005: Acquisition of Kryvorizhstal 2005: Investment of $9 billion in Jharkhand, India announced 2006: Merger with Arcelor announced and completed after much controversy 2006: Investment for 12 million tonnes capacity steel plant announced in
Orissa, India
Arcelor Mittal is the world’s number one steel company, with 320,000 employees in more than 60 countries. The company, which will be incorporated
57
in 2007 following the successful tender offer, brings together the world’s number one and number two steel companies, Arcelor and Mittal Steel.
Arcelor Mittal is the leader in all major global markets, including Automotive, Construction, Household Appliances and Packaging, with leading R&D and technology, as well as sizeable captive supplies of Raw materials and outstanding Distribution networks. An industrial presence in 27 European, Asian, African and American countries exposes the company to all the key steel markets, from emerging to mature, positions it will be looking to develop in the high-growth Chinese and Indian markets.COMMENT – Arcelor has R&D base and large market share. Along with it they are in the Forward Integeration & Upper end products. But Mittal steel is in the Backward & Lower segment and presence in Africa, Latin America & Eastern-Europe. So, there is advantage for Mittal steel.Arcelor Mittal key pro forma financials for the first six months of 2006 show combined revenues of €43,281 billion, with approximate production capacity of 130 million tonnes a year, representing around 12 % of world steel output.COMMENT – The capture of 12% share of production in steel industry will lead to better and large bargaining power. So, by lowering down the price they can attract the long-term customers and outrun small players.
Top-30 producers by International Iron & Steel Institute-
This is a list of the largest steel-producing companies in the world according to the International Iron & Steel Institute. The major evolutions since then are the merger of Arcelor and Mittal to Arcelor-Mittal and proposed buy-out of Corus Group by Tata Steel. (Output in million metric tons crude steel; the country/region of producer's basing specified in brackets)
1. (63.0) Mittal Steel Company NV (Global)
2. (46.7) Arcelor (Europe)
3. (32.0) Nippon Steel (Japan)
4. (30.5) POSCO (South Korea)
5. (29.9) JFE (Japan)
6. (23.8) Shanghai Baosteel Group Corporation (China)
58
7. (19.3) United States Steel Corporation (United States)
8. (18.4) Nucor Corporation (United States)
9. (18.2) Corus Group (Europe)
10.(17.5) Riva Group (Europe)
11.(16.5) ThyssenKrupp (Europe)
12.(16.1) Tangshan (China)
13.(13.9) EvrazHolding (Russia)
14.(13.7) Gerdau (Brazil)
15.(13.6) Severstal (Russia)
16.(13.5) Sumitomo Metal Industries (Japan)
17.(13.4) SAIL (India)
18.(12.0) Wuhan Iron and Steel (China)
19.(11.9) Anshan (China)
20.(11.4) Magnitogorsk (Russia)
21.(10.5) Jiangsu Shagang (China)
22.(10.5) Shougang (China)
23.(10.4) Jinan (China)
24.(10.3) Laiwu (China)
25.(10.3) China Steel (Taiwan)
26.(9.6) Maanshan
27.(9.4) Imidro
28.(8.7) Techint
29.(8.7) Usiminas (Brazil)
59
30.(8.5) Novolipetsk (Russia)
Total world steel output: 1131.8 Mton
Other major steel producers
1. Aichi Steel Corporation 2. AK Steel, formerly Armco, Middletown, Ohio 3. Algoma Steel in Sault Ste. Marie, Ontario 4. BlueScope Steel, primarily in Australia 5. Dofasco in Hamilton, Ontario 6. Dongkuk Steel Mill Co, LTD in Seoul, South Korea 7. Erdemir Ereğli Demir ve Çelik Fabrikaları A.Ş in Karadeniz Ereğli, Turkey 8. Ilyich Mariupol steel and iron works, Ukraine 9. INI Steel 10. Kobe Steel 11. Kryvorizhstal, Ukraine 12. Lone Star Steel Company 13. Outokumpu, based in Finland 14. Panzhihua 15. Rautaruukki, Finland 16. Siderúrgica del Orinoco in Puerto Ordaz, Venezuela 17. SSAB Svenskt 18. Stelco in Hamilton, Ontario 19. Tata Steel, India
Arcelor-
Arcelor S.A. is the world's largest steel producer in terms of turnover and the second largest in terms of steel output, with a turnover of €30.2 billion and shipments of 45 million metric tons of steel in 2004. It is registered in Luxembourg. The company was created by a merger of the former companies Aceralia (Spain), Usinor (France) and Arbed (Luxembourg) in 2001. On 25 June 2006, Arcelor announced the decision to merge with Mittal Steel, with the new company to be called Arcelor Mittal.
Arcelor’s Business-
60
Employing 94,000 employees in over 60 countries, it is a major player in all its main markets: automotive, construction, metal processing, primary transformation, household appliances, and packaging, as well as general industry. With total sales of over €30 billion, Arcelor is the world's largest steel manufacturer in terms of turnover. It produces long steel products, flat steel products and inox-steel. In January 2006 Arcelor announced the acquisition of Dofasco, Canada's largest steel producer with an annual output of 4.4 million tons. After an intense bidding war against the German ThyssenKrupp, Arcelor had finally bid 5.6 billion Canadian dollars. The high bid proves the importance of Arcelor's improving presence in the North American market.
COMMENT- by acquiring Arcelor it had bought the company DOFASCO & has presence in Canada. Mittal steel has entered in automotive, primary transformation, household appliances and packaging business.
Merger with Mittal Steel-
The company was the target of a takeover bid by its rival Mittal Steel in 2006. However, the bid resulted in tremendous increase in shareholder value caused due to the highest ever share prices quoted for Arcelor. Two members of the board of Arcelor, Guillermo Ulacia and Jacques Chabanier also resigned suddenly. On May 26, 2006 Arcelor announced its intention to merge with Severstal. Since then several economists, media and shareholders have questioned the intentions of Arcelor in announcing its merger with Severstal due to a perceived opacity in the transaction. But on 25 June 2006, the Arcelor board decided to go ahead with the merger with Mittal Steel and scrapped plans for Severstal merger. The new company will be called "Arcelor Mittal". Mittal Steel will hold 43.6% stake in the new company. Lakshmi Mittal (owner of Mittal Steel) will be the president and Joseph Kinsch (current Arcelor chairman) will remain the chairman of the new company till his retirement. Arcelor's merger with Mittal would create an undisputed champion in the steel industry and will increase its bargaining power with suppliers.
Reaction to the takeover - Arcelor's directors strongly opposed the takeover, with Arcelor's chief executive at that time, Guy Dollé, even dismissing Mittal as a "company of Indians". The French, Luxembourg and Spanish governments strongly opposed the takeover. The Belgian government on the other hand
61
declared its stance as neutral and invited both parties to deliver a business plan with the future investments in research in the Belgian steel plants. The French opposition was initially very fierce and has been criticized in the British, American and Indian media as double standards and economic nationalism in Europe. Indian commerce minister
On June 20, the above claim by economists was confirmed when Severstal increased its valuation of Arcelor. Management of Arcelor had in fact undervalued the company itself. The capability of management which had openly supported the previous valuation of Arcelor came into question. Further the combined markets of France, Belgium, Luxembourg and Spain chided Arcelor management and suspended trading of its stock.
On June 26, the Board of Directors recommended the approval of the improved Mittal offer (49% improvement compared to the initial offer with 108% improvement of the cash component), proposed the creation of Arcelor-Mittal with industrial and corporate governance model based on Arcelor and scheduled a corporate meeting for June 30 to vote on this.
NEWS - Arcelor would pay Severstal €140 million as a "fine" for the fall-out of their failed talks.
COMMENT – The deal was executed after paying fine to Severstal. So, mittal steel did not paid and did not suffered a loss.
NEWS - Kamal Nath warned that any attempt by France to block the deal would lead to a trade war between India and France.
COMMENT – This shows the impact on indian economy. The entry in India market was open for Mittal and Technical advantage transferred to Tata Steel by Arcelor will force Tata to form with Mittal Steel. India signed a double taxation savings deal with Netherland, as Mittal is going to employ Indians and they would remitt foreign currency to India.
Transaction highlights1. Arcelor Mittal: A merger of equals with shared management for successful
integration Ownership of 50.5% for Arcelor investors and 49.5% for Mittal Steel investors.
62
COMMENT – By fixing this ratio he commented that he donot have total control on the company. But mittal was recruited as CEO of company as the shareholder’s find that he has ideas to make profit in long run.
2. Recommended transformational merger of the world’s two largest steel companies with unrivalled global footprint.
3. The undisputed industry leader is to be formed.4. Creation of company with unprecedented scale and diversification to manage cyclicality, stabilize earnings and increase shareholder returns.
a) Annual synergies increased by 60% to €1.3bn (US$1.6bn)b) EPS accretive transaction with attractive terms for all shareholders.c) The clear investment of choice in the industry with significant re-rating
a. Potential. Comment – Annual synergy increased by $1.6 bn- a clear profit. EPS was expected to increase in future. This would benefit to
shareholders as they can trade the shares at high price in future. Due to ailing bad debt problems to Arcelor it was expected to come out
of the losses. Also the profit margin of Mittal steel was high. It expected to increase in future of Arcelor profit margin.
A win/win transaction for all stakeholders also:-Gains for Arcelor
1. Operations in high-growth economies like China.
2. Low-cost, profitable assets and local
Operating expertise in numerous emerging markets.3. Leadership position in high-end
segments in North America, with strong R&D capabilities.
4. Access to very low cost slab potential in Ukraine to serve West Europe.
5. Access to raw materials and upstream integration.
Gains for Mittal Steel1. Leadership position in high-end
segments.2. Western Europe, with strong
R&D capabilities but in lower segment.
3. Low-cost slab manufacturing in Brazil that can be expanded for export to Europe and North America
4. Successful distribution business in Europe to capture by Mittal Steel.
5. Increased free float and Liquidity in share of mittal steel also.
The proposed transaction- 13 Mittal Steel shares plus €150.6 cash for 12 Arcelor shares
63
Ability to elect to receive more cash or shares, subject to 31% cash and 69% stock paid in aggregate.
Very significant premium to Arcelor’s pre bid all time share price high 10.1% further improvement in the offer based on latest MT share price 7.0% further improvement in the offer based on 19 May revised offer.
Values Arcelor shares at €40.4 as at 23 June close. Closing of the tender offer expected to be extended by a few days beyond 5
July.
Composition of Management Board– The Management Board will be comprised of 7 executive members• 4 current Arcelor executives, CEO to be proposed by the Chairman• 3 Mittal Steel executives
Strategy to be adopted in future after merger:-
1. Consolidate regional high-end leadership into global customer platform2. Achieve industrial excellence through state of the art assets sustained by
sound capital expenditure and best in class R&D
3. Realize commercial leadership through strong distribution channels4. Capture growth in BRICET countries, utilizing existing leadership in high-
end products in mature economies5. Accelerate growth in key emerging markets such as India and China.6. Achieve cost leadership and operational excellence across product range.7. Maintain high level of vertical integration to hedge against raw materials
price fluctuations. 8. Focus on people management and social responsibility.
64
Strong Re-Rating Potential
1. Significant discount in terms of EV/EBITDA and P/E.2. Reduced cyclicality and larger market capitalization.3. Enhanced trading liquidity.
Likely to be included in key benchmark indices like CAC40 and EuroStoxx50.
Comments- EBITDA & P/E ratio is still low. It gives the chance to catch-up the industry average. Apart of it the cyclicality will lead to profits in business. Chance of listing in other stock markets. It will benefit to image of company net benefit to company. The overall production is still high among their competitors. They force them to consolidate in future.
65
Unmatched financial strength-
Comment – Net Debt/EBITDA is 1.7 which means Debt can be paid back by the company’s profit. If debt would have not been taken it would have been increased the free cash flow. Apart of that due to debt they will get tax benefits and further acquisitions can be financed by taking another debt.
66
Rival bid of Severstal to acquire Arcelor
Introduction to Sever Stal Group –
1. Severstal Group is one of the largest industrial groups in Russia with
interests in steel, mining, pipe-production, automotive, plywood, banking
and insurance.
2. Second largest producer of flat steel products in Russia and 5th
largest integrated steel-maker in the U.S.
3. First Russian steel company with upstream and downstream
assets in the USA and EU
4. Supplies and transportation of iron ore, coal and limestone
secured by affiliates in Russia
5. Advantageous geographical location:
Close to the Baltic Sea ports and key customers in Central Russia Near Detroit close to automotive customers and raw material Suppliers in North America Increased focus on high quality auto steel and strips Cohesive and highly experienced management team Increased focus on domestic and cross-border consolidation
2007 PRODUCTION ESTIMATION OF SEVERSTAL GROUP:-
67
DEAL OFFER FOR ARCELOR BY SEVERSTAL GROUP:-
Arcelor issues 295m shares representing 32.2% of the enlarged. Arcelor at a value of €44 per share excluding dividend of €1.85 Alexey Mordashov contributes all of his 89.6% stake in Severstal including
mining assets and foreign subsidiaries (2), and €1.25bn in cash. Merger agreed on a 2005 EBITDA pro forma multiple basisof 6.0x for
Arcelor and 5.6x for Severstal. Up to €7.6bn cash to be returned to shareholders,including dividends and
OPR.
Arcelor agreed to buy Severstal by swapping newly issued shares for Severstal's
steel assets, a move that has evoked apprehension on the part of some
shareholders. The 6.5 bn euro share-buyback plan is seen as a defensive move
against Lakshmi Mittal, who has ruled out a three-way tie-up among Mittal Steel,
Arcelor and Severstal. In a bid to allay shareholder apprehensions, Mordashov,
who owns 90% of Severstal, has sweetened his merger terms by reducing his
stake in a Severstal-Arcelor combination to 25%, from 32%, in exchange for
scrapping a cash contribution of 1.25 bn euros to Arcelor. He also offered to give
up rights to form a strategic committee within Arcelor's board that would
68
recommend new acquisitions. But the deal was turned down and this statement
was given by the company officials in the board meetings.
“All of the key conditions established by the Board and presented by the
Management Board as well as the observations made by the European works
council in terms of valuation, industrial plan and corporate governance, have
been met," Arcelor said in a statement.
The long-running battle for control of Luxembourg steelmaker Arcelor on Friday
took an unexpected twist when the company announced a planned deal that
would give a stake of more than a third in the business to Alexey Mordashov, a
40-year-old Russian steel magnate. Spanish businessman who owns 3.7% of
Arcelor and has a representative on the board, called for the scrapping of a plan to
merge the companies through the issue of new shares to Alexei Mordashov, a
Russian steel tycoon.
Arcelor said the proposed merger agreement, upon which shareholders are
scheduled to vote Friday, provides:-
1. A mixed offer at a price equal to 13 Mittal Steel shares and 150.6 euros in cash per 12 Arcelor shares, or 12.55 Euros in cash and 1.084 Mittal Steel shares per Arcelor share.
2. A cash offer at a price equal to 40.4 euros per Arcelor share. 3. An exchange offer at an exchange ratio of 11 Mittal Steel shares per 7
Arcelor shares. 4. A mixed offer for Arcelor convertible bonds at a price equal to 13 Mittal
Steel shares and 188.42 Euros per 12 Arcelor OCEANEs.rtn
Conclusion-The L N Mittal family will receive about $780 million as dividend next year under the guaranteed minimum dividend announced by Arcelor-Mittal. There has been anger in Luxembourg and the Walloon region of Belgium, which together hold close to a 9% stake. They are unhappy with the Arcelor board's strategy of
69
increasing Arcelor's debt from 5 billion Euros to nearer 12 billion Euros to finance a share buyback with no aim other than checkmating Mittal, in what many now see as a clash of egos between Lakshmi Mittal and Arcelor's chief executive, Guy Dolle. A value-enhancing transaction-
1. Creating the undisputed leading global steel company.2. Growth and value creation opportunities maximized through
unique global platform.3. Step change in steel industry consolidation.4. Significant synergy potential.5. Financial strength and strategic flexibility reinforced.6. Leadership in R&D product development.7. Significant free float and liquidity.8. Re-rating potential. And positives for all the stakeholders
INDUSTRIAL EXPERTS VIEWS
1. Mittal Steel in €26.6 Billion Arcelor Deal; Merger Will Unite World's Two
Largest Steelmakers July26,2006 BY CLEARY GOTTLIEB,
News - Cleary Gottlieb is advising long-time client Mittal Steel in its
unsolicited but ultimately recommended bid for Arcelor.
The combined entity, Arcelor Mittal, will be, at 100 million tons of steel shipped per year, the world’s largest steel company, more than three times larger than its closest rival.
Comment – This would give Mittal to be a mega giant company compared to other’s rivals. This would lead to increase in bargaining power increase by Mittal Steel.
2. ADITYA MITTAL: Arcelor and Mittal steel is the best combination within the steel industry.
President and chief financial officer of the mittal industry- spokes recently with knowledge@wharton.
Comment – Son of Mittal is seen to be the successor of Laxmi Niwas Mittal. That’s why Arcelor is safe under his umbrella. He is considered to better than his father.
70
3.The world’s biggest steelmaker, Arcelor, expects China’s stainless steel
consumption to increase and it may raise product prices in the second half to
reflect global demand and likely gains in nickel prices. It added textile,
petrochemical and pharmaceutical industries to the list last week after inflation
rose in china.
Comment – Arcelor shareholder’s are assured of entry in India and China and see as a potential for company. This supports the mammoth Mittal-Arcelor Merger.
3. Mittal buys Arcelor to create mammoth companyThe July 25 merger agreement puts four Northwest Indiana mills formerly
operated by several different owners under the Arcelor Mittal umbrella. The mill
currently known as Mittal Steel Indiana Harbor West was owned by LTV Corp.
until it was purchased out of bankruptcy by International Steel Group Inc., which
sold out to Mittal for $4.5 billion in April 2005.
Comment – This giant company has characters of buying the ailing companies and turning it in profitable business. This strategy saves money by buying at low price and save for the tax advantages. The marketing is done in the other countries.
4.Tata Steel and Corus Group -Merger:
71
Tata Steel and Corus Group Plc may pen India Inc's biggest merger story
overseas.
According to market sources having access to current thinking in the Bombay
House and at Corus' London headquarters, both the companies are weighing
possibility of a pure merger along with a buyout proposal.
"Both the approaches have respective strengths and weaknesses from the
point of view of the large number of stakeholders including employees and
institutional investors in the European and Indian companies. Discussions are at a
fairly advanced stage now before giving final touches to a mutually acceptable
methodology, arriving at respective valuation of the two entities and bringing
about operational synergies post combination or straight takeover," a global
merchant banking source told Business Line from London late Tuesday evening
IST.
The merger-
It is understood that in case of a merger, Tata Group would be looking at a 20-23
per cent stake in the combined holding, and in a buyout scenario, its valuation of
Corus ranges between $8 billion and $8.5 billion. Tata Group is, sources insist,
internally prepared for choosing both the options, including organisation of
funding.
Sources indicated that Bombay House had been burning the mid-night oil
over the Tetley-Tata Tea and Mittal-Arcelor models in the last couple of months.
"A final call on the issues would be made by the top brass of Tata Group and
Corus Group this week in London," said an insider.
72
The timing of the agreement coincides the end of the loan note scheme, a legacy
issue since the merger of British Steel and Hoogovens to form Corus, and
dividend payment of Corus.
Key factors-
The key factors currently hogging the negotiation limelight are: comparative
assets strength, particularly mining assets; cost competitiveness; cash flows and
liabilities.
Corus does not have any significant mining interest or asset since the second half
of 2002, when it sold off its minority holding in AvestaPolarit to Outokumpu.
The company currently imports around 25 million tonnes of iron ore a year,
principally from Brazil, South Africa, Australia, Canada and Venezuela. On the
contrary, sources pointed out that Tata Steel has rich iron, dolomite, chromium
and manganese mining, and related assets in India and even abroad. It currently
produces over 9 million tonnes of iron ore.
Corus has been struggling even after a five-year rally in steel prices because of
the high cost of operation in the UK than in India, China or Russia, the so-called
non-Kyoto manufacturers. .
According to the IISI (International Iron and Steel Institute) data, the average
hourly rate of pay in the UK steel industry in 2004-05 was 6 times that of Brazil
and 10 times that of India. In contrast, it is acknowledged that Tata Steel is the
lowest cost producer in the world, a top company source asserted
Deal risks-
Some analysts said they expected the move by Tata to spark a takeover war.
Severstal, the Russian steel giant controlled by Alexei Mordashov, is among
73
those who must decide whether to launch a hostile bid. Analysts broadly
welcomed the deal, but warned that there were risks. The biggest one is said to
be that if there is an economic downturn over the coming years, Tata Steel might
have difficulty paying off the £1bn of debt it is taking on to buy Corus. In those
circumstances there might be dangers for Corus' pension fund, which has 166,000
members in the UK
Increasing consolidation-
Unions reacted with caution to the news of the deal. "The assurances on jobs look
very brittle at the moment," said Transport and General Workers Union national
secretary John Rowse. "This is still a big operation in the UK and we would want
to know what the deal means for our members' jobs in the manufacturing side of
Corus as well as all the former workers whose pensions are also very much on
our mind." Denis MacShane, the MP for Rotherham and chairman of the Steel
Group of MPs, told the BBC he was positive about the deal. The takeover comes
amid growing consolidation in the global steel industry. With prices and demand
soaring, Mittal Steel - the world's largest steel firm - bought European rival
Arcelor for $34bn earlier this year. Tata Steel is part of the wider Tata group,
which has business interests ranging from carmaking to Tetley's tea.
Analysis: My opinion-
The Tata Group is celebrating its acquisition of the Anglo-Dutch steel firm
Corus, and the catapulting of Tata Steel into world steel's big-five status (by
revenue). It should. The $11 billion deal is a marker in the ground. Not that it is
the biggest deal ever from an emerging market.
74
Recent deals, even attempts, have been bigger. For example, Brazilian firm
Companhia Vale do Rio Doce successfully acquired most of Canadian nickel
company Inco Limited for $19 billion last year, and Chinese petro giant CNOOC
tried, but failed, to pull off an $18 billion acquisition of Unocal in the U.S.
But Tata-Corus is the largest out of India, and is done by a private sector entity of
its own volition, away from the shadow of state influence. For these reasons, it
bears noticing.
In that case, as in Tata-Corus, the rationale was to supplement the customer-
facing front-end in the developed markets, with a lower-cost back-end in an
emerging market. That is, TCL was trying to buy a sales and marketing structure
and a set of brands. Much like Tata is with Corus. But that story had a sorry
ending.
TCL chairman Li Dongsheng was awarded a French accolade, Officer de La
Legion D'Honneur, the highest honor France had yet bestowed upon a Chinese
entrepreneur, but his shareholders don't have much to show for the deal.
First, CNOOC's bid collapsed amid Washington intrigue. The Chinese proved to
be babes-in-the-wood in navigating the Byzantine corridors of Washington's
power, and underestimated a relentless backlash that unwound the deal. While
politics and steel are not alien to each other, there is nothing in Tata-Corus like
the level of political concern in the CNOOC-Unocal situation.
Second, TCL acquired Thomson's assets from a position of weakness. Margins at
TCL were under pressure from cut-throat competition in mainland China. Even
though TCL was one of the largest Chinese TV manufacturers (even prior to the
acquisition of Thomson's assets), commodity TVs and other consumer electronics
items were not producing good returns.
75
Third, there was much difficulty in integrating Chinese and French management.
Some of this surely stemmed from language considerations. To an extent, the
Indians' greater command of the world's lingua franca will lubricate the
inevitably-difficult integration process.
Fourth, the Tatas have built up some experience in the past few years with cross-
border acquisitions. Some of this lies within Tata Steel itself, as in its acquisition
in Singapore. And the rest lies in the broader ambit of the Tata group through its
acquisitions of Daewoo's truck assets in South Korea, Tetley Tea in the U.K. and
ritzy hotel properties on the U.S. East Coast.
Fifth, there is learning in the ambience. That is, India Inc. has built up, and is
building up, its own cross-border acquisition capability. This arises not just from
entrepreneurs who have been doing this for years like the Birlas and Asian Paints
but also from more recent moves by India's pharmaceuticals, software, and auto
component sectors, among others.
Cross-border experiences with integrating diverse management teams,
communicating across borders and time zones, and integrating compensation
practices, are not as new to the Tata group as they might well have been to the
hapless TCL management team.
And finally, my feeling is that the Indians are still underestimated in the West, at
least relative to the Chinese. This complacency might well prove to be the biggest
weapon available to the new big-five kid on the block from Jamshedpur.
76
5.Hutch Vodafone Merger:
It’s a win-win situation all the way. Vodafone and the Ruias, who control 33% in
Hutch, have managed to seal a deal which not only limits the British telecom
major’s buyout tab of Essar’s stake to $5 billion, but also presents the Ruias with
an opportunity to cash in on any possible upside.
The reasoning is simple. If valuations dip, Essar will still walk away with a cool
$5 billion, though it’s a tad less than the current value of $5.6 billion for the
group’s 33% stake in Hutch. If valuations climb, the Ruias can definitely rake in
more. Essar can then sell equity worth up to $5 billion to Vodafone while
retaining the rest of the holdings.
For the Newbury, England-based telecom giant Vodafone, this implies that the
payout for the acquisition will be limited to $5 billion to Essar in any case. If
valuations decline, it will definitely pinch to shell out $5 billion. But by then,
Vodafone would have recovered a reasonable chunk of its investments in the
world’s fastest growing telecom market.
If valuations rise, Vodafone can lap up Essar’s stake worth $5 billion without any
negotiations. According to the agreement between the two sides, Essar’s liquidity
rights between the third and fourth years of agreement completion include “an
option to sell its 33% shareholding in Vodafone Essar to Vodafone for $5 billion
or an option to sell between $1 billion and $5 billion worth of Vodafone Essar
shares to Vodafone at an independently appraised fair market trading value.”
On the operational front too, the arrangement is bound to suit both the parties.
“Vodafone’s expertise is in managing telecom business and the operational
control with it augurs well for the company. By leaving operations to Vodafone,
77
Essar can concentrate on its core businesses,” Romal V Shetty, director
(telecommunications), KPMG, said.
With the put option, the Essar group has fully protected itself against any
possible liquidity risk, which arises from a difficulty in selling an asset. In this
case, Essar had enough reasons to ensure adequate safeguards. For one, telecom
is not a core business of the Essar group.
With the put option, three years down the line, Essar will have a cash pile which
can be pumped into businesses where the group has core competencies such as oil
and steel. Secondly, the telecom sector’s zooming valuations may see some
correction in the next three to four years, according to analysts. “As the
penetration in the market goes up, valuations go down because valuations are
based on future cash flows. Typically, when penetration crosses the 30-40%
mark, valuations begin to fall, which is what we are likely to see in India after
2010,” said an analyst with a leading research firm.
According to a study by Ernst & Young, “Ebitda margins for operators would
remain under pressure as ARPU is expected to fall. The ARPU fall would be
dictated by a further drop in tariff, given the competitive nature of the market
space and the fact that the industry would be adding marginal subscribers in the
next few years.”
Deal and other major issues:
VODAFONE HAS clinched a deal with India's Essar Group over its controlling
interest in Hutch – India's fourth largest cellular operator. The company will
rename as Vodafone Essar.
78
Part of the deal sees Essar's Ravi Ruia becoming chairman of company while
Vodafone's Arun Sarin, will act as vice chairman. Sarin has said that he wants
Vodafone Essar to become the leading player in India by 2010.
The way in which the agreement has been reached could prove controversial.
Hutchison Telecommunications International Ltd (HTIL) – whose stake
Vodafone is acquiring – has apparently agreed a payment to Essar of around $415
million.
In return Essar will drop any attempts it might have made to claim first rights to
buy the HTIL stake of 67 per cent instead of Vodafone. The agreement shows
that Essar fully intends to co-operate with Vodafone in the new company.
There may be a snag, however. Indian law prevents a foreign company from
owning more than 74 per cent of a native telecommunications company.
Vodafone has off-loaded part of its share onto two Indian nationals - Analjit
Singh and Hutchison Essar's managing director, Asim Ghosh.
The catch is that part of Essar's stake is held overseas. So in total, more than 74
per cent could be regarded as being in 'foreign' hands.
Sarin does appear to have achieved his objective of breaking into what is the
world's fastest expanding cellular market. The question is where does Vodafone
look next?
One obvious answer would be the former Soviet Republics. But Telenor of
Norway's experience in a previous part of Russia – the Ukraine – doesn't bode
well.
Presently Telenor is locked in a protracted legal battle with Russia's Altimo over
Ukraine's largest mobile operator, Kyivstar. A serious slanging match between
the two is currently underway.
79
So where could Vodafone exploit its forthcoming expertise in providing cellular
services to remote rural communities whose residents have low incomes but poor
existing telecoms infrastructure?
Conclusion:
From this project I got to know lots of things like how company’s can go for
mergers, which method is best for them to adopt for valuation. How they can
finance there acquisitions. From analysis of three cases I got to know what their
synergies were and what benefits they are getting from the deal.
80
TOP 5 DEALS OF M&A
1. Tata Steel-Corus: $12.2 billion
On January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at
608 pence per share in an all cash deal, cumulatively valued at $12.2 billion.
The deal is the largest Indian takeover of a foreign company till date and made
Tata Steel the world's fifth-largest steel group.
2. Vodafone-Hutchison Essar: $11.1 billion
On February 11, 2007, Vodafone agreed to buy out the controlling interest of
67% held by Li Ka Shing Holdings in Hutch-Essar for $11.1 billion. This is the
second-largest M&A deal ever involving an Indian company. Vodafone Essar is
owned by Vodafone 52%, Essar Group 33% and other Indian nationals 15%.
3. Hindalco-Novelis: $6 billion
Aluminium and copper major Hindalco Industries, the Kumar Mangalam Birla-
led Aditya Birla Group flagship, acquired Canadian company Novelis Inc in a $6-
billion, all-cash deal in February 2007.
Till date, it is India's third-largest M&A deal.The acquisition would make
Hindalco the global leader in aluminium rolled products and one of the largest
aluminium producers in Asia. With post-acquisition combined revenues in excess
of $10 billion, Hindalco would enter the Fortune-500 listing of world's largest
companies by sales revenues.
4. HDFC Bank-Centurion Bank of Punjab: $2.4 billion
HDFC Bank approved the acquisition of Centurion Bank of Punjab for Rs 9,510
crore ($2.4 billion) in one of the largest mergers in the financial sector in India in
81
February, 2008. CBOP shareholders got one share of HDFC Bank for every 29
shares held by them. Post-acquisition, HDFC Bank became the second-largest
private sector bank in India.
The acquisition was also India's 7th largest ever.
5. Tata Motors-Jaguar Land Rover: $2.3 billion
Creating history, one of India's top corporate entities, Tata Motors, in March
2008 acquired luxury auto brands -- Jaguar and Land Rover -- from Ford Motor
for $2.3 billion, stamping their authority as a takeover tycoon.
Beating compatriot Mahindra and Mahindra for the prestigious brands, just a year
after acquiring steel giant Corus for $12.1 billion, the Tatas signed the deal with
Ford, which on its part chipped in with $600 million towards JLR's pension plan.
Sterlite, the Indian arm of the London-based Vedanta Resources Plc, acquired
Asarco in March 2008.
82
Research Methodology:
Types of Research: Descriptive Research
Methods of Data Collection:
SECONDARY DATA- Internet
Magazines
News Papers
83
References:
Websites that will be likely referred for this study:
www.indiainfoline.com www.myiris.com www.mckinsey.com www.merger-acquisition.net www.ficci.com www.wikipedia.org www.google.com www.investsmartindia.com www.nseindia.com www.bseindia.com www.finance.yahoo.com www.tatasteel.com www.hbs.com www.blonnet.com/2006/10/13/stories
Other sources:
Newspapers like Business line, Economic times and Financial express. Books
MAGAZINES AND JOURNALS-
Chartered Financial Analyst The Week Business World
84
Top Related