Kumar / Sharma An Insight into Mergers and Acquisitions

A Growth Perspective
1. Auflage 2019
ISBN: 978-981-13-5829-6
Verlag: Springer Nature Singapore
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 227 Seiten

Reihe: Progress in Mathematics

This book provides an insight in the phenomenon of Mergers and Acquisitions (M&A), including the various forms of corporate restructuring. It highlights the importance of M&A as a strategy for faster growth in the corporate. The book provides an enriched experience of the art of valuation with detailed description of M&A process, deal structuring and financing. The book also provides the broader perspective of Accounting and Regulatory aspects of M&A. While covering the conceptual underpinnings of M&A, the book supplements it with real life examples on each sub-topic with various numeric examples. Thus the judicious blend of theory and practical aspects, through numerical as well as real life case-studies, make the book a source of vast knowledge in the complicated and dynamic world of M&A.


Dr Vinod Kumar is Associate Professor at SGND Khalsa college, Delhi University, India. He has teaching experience of 40 years at Delhi University and many of the management institutes of repute. He was dean and director of International College of Financial Planning for a period of 2 years. He has been conducting workshops for FPSB, NSE, BSE, BNP PARIBAS and BAJAJ CAPITAL on various subjects of financial markets. He is the founder editor of the investors' India magazine of Bajaj Capital. He is also an associate of IIAS, Shimla. He was the coordinator for Ministry of HRD Project, EPG -Pathshala for financial markets and institutions.  Dr Priti Sharma is an Assistant Professor at Institute of Management Technology Centre for Distance Learning India, Ghaziabad, India.She has been associated with International College of Financial Planning (ICoFP) - A Bajaj Capital Group institute, ICFAI, National Stock Exchange and Bombay Stock Exchange as full time/ visiting faculty. She has worked with Flex Industries Ltd in corporate finance division.  She developed the Content of MOOCs for 'Financial Institutions & Markets' course for Ministry of HRD Project 'EPG Pathshala'.

Autoren/Hrsg.

Kumar, Vinod

Sharma, Priti

Inhaltsverzeichnis

1;Preface;5
2;Acknowledgements;7
3;Contents;10
4;About the Authors;11
5;List of Figures;13
6;List of Tables;15
7;Chapter 1 Introduction to Merger, Acquisition, and Corporate Restructuring;16
7.1;1.1 Introduction;16
7.2;1.2 Corporate Restructuring;18
7.2.1;1.2.1 Amalgamation/Combination;18
7.2.1.1;1.2.1.1 Combination Through Merger;19
7.2.1.2;1.2.1.2 Combination Through Acquisition/Purchase;20
7.3;1.3 Types of Mergers and Acquisitions;20
7.3.1;1.3.1 Horizontal Merger;20
7.3.2;1.3.2 Vertical Merger;21
7.3.3;1.3.3 Co-generic Merger;21
7.3.4;1.3.4 Conglomerate Merger;21
7.3.5;1.3.5 Domestic Merger;21
7.3.6;1.3.6 Inbound Merger;22
7.3.7;1.3.7 Outbound Merger;22
7.3.8;1.3.8 Friendly Takeover;22
7.3.9;1.3.9 Hostile Takeover;22
7.3.10;1.3.10 Leveraged Buyout;23
7.3.11;1.3.11 Management Buyout;23
7.4;1.4 Other Forms of Corporate Restructuring;23
7.4.1;1.4.1 Demerger;23
7.4.2;1.4.2 Reverse Merger;23
7.4.3;1.4.3 Divestiture;24
7.4.4;1.4.4 Spin-Off;25
7.4.5;1.4.5 Split-Off;25
7.4.6;1.4.6 Split-Up;25
7.4.7;1.4.7 Equity Carve Out;26
7.4.8;1.4.8 Assets Sale;26
7.4.9;1.4.9 Slump Sale;27
7.4.10;1.4.10 Joint Ventures;27
7.4.11;1.4.11 Franchising;27
7.4.12;1.4.12 Strategic Alliance;28
7.4.12.1;1.4.12.1 Delhi Aviation Fuel Facility Pvt. Ltd;28
7.5;1.5 Historical Developments of Mergers and Acquisitions;28
7.5.1;1.5.1 M&A in US Economy: Merger Waves;28
7.5.2;1.5.2 The First Wave Turn of the Last Century (1895–1904);29
7.5.3;1.5.3 Second Wave (1916–1929);30
7.5.4;1.5.4 Third Wave (1965–1969);31
7.5.5;1.5.5 Fourth Wave (1981–1989);32
7.5.6;1.5.6 Fifth Wave (1990–2000);34
7.5.7;1.5.7 Sixth Wave (2003–Till Present);35
7.6;1.6 Merger and Acquisition Trends in India;36
7.6.1;1.6.1 Pre-Liberalization Era;37
7.6.2;1.6.2 Post-liberalization Phase;38
7.6.2.1;1.6.2.1 Slow Growth Period (1991–2000);38
7.6.2.2;1.6.2.2 Rapid Growth Period (2000–2007);40
7.6.2.3;1.6.2.3 Global Recession and Recovery;41
7.6.2.4;1.6.2.4 Ongoing Phase (2011 Onwards);42
8;Chapter 2 Motives of M&A and Deal Synergies;45
8.1;2.1 Theories of M&A;45
8.1.1;2.1.1 Value Creating Theories;45
8.1.1.1;2.1.1.1 The Synergy Theory;45
8.1.1.1.1;Economies of Scale;46
8.1.1.1.2;Economies of Scope;47
8.1.1.1.3;Market Power;47
8.1.1.2;2.1.1.2 The Market for Corporate Control Theory;47
8.1.1.2.1;Free Cash Flows and Cash Consideration for M&A;48
8.2;2.2 Value Reducing Theories;48
8.2.1;2.2.1 Agency Costs of Free Cash Flow;48
8.2.1.1;2.2.1.1 Managerial Entrenchment;49
8.3;2.3 Value Neutral Theory;49
8.3.1;2.3.1 The Hubris Hypothesis of “Corporate Takeovers”;49
8.4;2.4 Motives Behind Mergers/Acquisition;49
8.4.1;2.4.1 Financial Nature;50
8.4.2;2.4.2 Management Intention;50
8.4.3;2.4.3 Fear of Loss of Market Share;50
8.5;2.5 Evaluation of Deal Synergy;51
8.5.1;2.5.1 Some Common Forms of Synergies;51
8.5.1.1;2.5.1.1 Economies of Scale;51
8.5.1.2;2.5.1.2 Access to Cheaper Credit;52
8.5.1.3;2.5.1.3 Increased Market Share;52
8.5.1.4;2.5.1.4 Diversification;53
8.5.1.5;2.5.1.5 Tax Savings;53
8.5.1.6;2.5.1.6 Acquisition of Crucial Resource;53
8.5.1.7;2.5.1.7 Vertical Integration;54
8.6;2.6 Valuation of Synergy;54
8.6.1;2.6.1 Discounting Benefit Method;55
9;Chapter 3 M&A Process and Defensive Strategies;58
9.1;3.1 M&A Process;58
9.1.1;3.1.1 Step 1: Formulation of Strategy for M&A and Identification of Target;59
9.1.2;3.1.2 Step 2: Target Evaluation and Analysis;60
9.1.3;3.1.3 Step 3: Reaching Out to Target and Negotiations;60
9.1.4;3.1.4 Step 4: Due Diligence;61
9.1.4.1;3.1.4.1 Operational Due Diligence;61
9.1.4.2;3.1.4.2 Financial Due Diligence;62
9.1.4.3;3.1.4.3 Legal Due Diligence;62
9.1.4.4;3.1.4.4 Organizational Due Diligence;62
9.1.5;3.1.5 Step 5: Final Negotiations and Closing the Deal;63
9.2;3.2 Concentration Measures;64
9.3;3.3 Hostile Acquisitions;65
9.3.1;3.3.1 Defensive Strategies in Case of Hostile Takeovers;65
9.3.1.1;3.3.1.1 Preventive/Preemptive Defense Strategies;66
9.3.1.2;3.3.1.2 Preventive Pre-offer Measures;66
9.3.1.2.1;Control Over the Register;66
9.3.1.2.2;Differential Voting Rights Shares (DVRs);67
9.3.1.2.3;Employee Stock Ownership Plan (ESOP);67
9.3.1.2.4;Poison Pill;67
9.3.1.2.5;These Poison Pills Can Be of Various Types Like;68
9.3.1.2.5.1;Flip-In;68
9.3.1.2.5.2;Flip-Over;68
9.3.1.2.5.3;Poison Puts;68
9.3.1.2.5.4;People Pill;69
9.3.1.2.5.5;Jonestown Defense;69
9.3.1.2.5.6;Staggered Board;69
9.3.1.2.6;Supermajority Voting for Mergers;69
9.3.1.2.7;Fair Price Amendment;70
9.3.1.2.7.1;Golden Parachute;70
9.3.1.3;3.3.1.3 Lobster Trap;70
9.3.2;3.3.2 Responsive Takeover Defense Strategies Litigation;71
9.3.3;3.3.3 Greenmail;71
9.3.4;3.3.4 Buyback of Shares;71
9.3.5;3.3.5 Crown Jewel;71
9.3.6;3.3.6 Pac-Man Defense;72
9.3.7;3.3.7 Propaganda;72
9.3.8;3.3.8 White Knight Defense;72
9.3.9;3.3.9 Scorched Earth Policy;73
9.4;3.4 Conclusion;73
10;Chapter 4 Deal Structuring and Financing;74
10.1;4.1 Introduction;74
10.2;4.2 Deal Structuring Process;75
10.3;4.3 Why Deal Structuring Matters?;75
10.4;4.4 Deal Financing and Deal Structure;78
10.5;4.5 Deal Structuring and Financing;78
10.5.1;4.5.1 Asset Purchase;79
10.5.2;4.5.2 Stock Purchase;80
10.5.2.1;4.5.2.1 Example IGATE Acquires Majority Stake in Patni Computers;80
10.5.3;4.5.3 Merger;82
10.6;4.6 Other Structures;83
10.6.1;4.6.1 Two-Stage Stock Acquisition;83
10.6.2;4.6.2 Triangular Merger;84
10.6.3;4.6.3 Leveraged Buyout;84
10.6.4;4.6.4 Single-Firm Recapitalization:;85
10.7;4.7 Swap Ratio;85
10.7.1;4.7.1 Illustration 1;86
10.7.2;4.7.2 Solution;86
10.7.3;4.7.3 Illustration 2;87
10.7.4;4.7.4 Solution;87
11;Chapter 5 Deal Valuation;89
11.1;5.1 Introduction to Valuation;89
11.2;5.2 Valuation Methodologies;90
11.3;5.3 Market Value-Based Valuation Approach;90
11.4;5.4 Status Quo Valuation;91
11.5;5.5 Transaction Analysis;93
11.5.1;5.5.1 Comparable Company Analysis;94
11.5.1.1;5.5.1.1 Price Multiples;94
11.5.1.2;5.5.1.2 Enterprise Value Multiples;95
11.5.2;5.5.2 Transaction-Based Valuation;96
11.6;5.6 Discounted Cash Flow Model;98
11.6.1;5.6.1 Free Cash Flow Discount Model;99
11.6.1.1;5.6.1.1 Free Cash Flow to Equity (FCFE);99
11.6.1.2;5.6.1.2 Free Cash Flow to Firm (FCFF);99
11.7;5.7 Sum of Parts Approach;102
11.8;5.8 Case Study on Valuation;102
11.8.1;5.8.1 Acquisition of Myntra by Flipkart;102
11.8.2;5.8.2 Valuation of Myntra;103
11.8.3;5.8.3 Deal Overview;103
11.8.4;5.8.4 Process of Calculating the Intrinsic Value Through DCF (from Flipkart Point of View);104
11.8.4.1;5.8.4.1 Projecting the EBIT;105
11.8.4.2;5.8.4.2 Ascertaining the Change in Working Capital;110
11.8.4.3;5.8.4.3 Discounted Cash Flow Calculation;112
11.8.4.4;5.8.4.4 Calculating Appropriate Rate for Discounting;113
11.8.4.5;5.8.4.5 Extended Forecast & Terminal Value;115
12;Chapter 6 Accounting for Mergers and Acquisition;118
12.1;6.1 Introduction to M&A Accounting;118
12.2;6.2 M&A Accounting as per Accounting Standard AS-14;118
12.2.1;6.2.1 Amalgamation in the Nature of Merger;119
12.2.2;6.2.2 Amalgamation in the Nature of Purchase/Acquisition;120
12.3;6.3 Pooling of Interest Method;120
12.4;6.4 Purchase/Acquisition Method;122
12.5;6.5 IFRS and IndAS;124
12.6;6.6 Provisions of IndAS 103—Business Combinations;125
12.6.1;6.6.1 Business Combination;125
12.6.2;6.6.2 Purchase/Acquisition Method;126
12.6.3;6.6.3 Pooling of Interest Method;129
12.6.3.1;6.6.3.1 Method of Accounting for Common Control Business Combinations;129
12.7;6.7 Difference Between AS 14 and IndAS 103;131
12.8;6.8 Difference Between Purchase Method and Pooling of Interest Method;132
13;Chapter 7 Performance Evaluation of M&A;133
13.1;7.1 Introduction;133
13.2;7.2 Who Says M&A Doesn’t Create Value—“Accenture Report 2012”;134
13.3;7.3 Evaluation of M&A Performance;135
13.3.1;7.3.1 Performance Evaluation: BootStrapping Effect;138
13.4;7.4 Empirical Evidence on Long-Term Financial Performance Evaluation of M&A;139
13.4.1;7.4.1 Study on Performance Evaluation of M&A in the USA;140
13.4.2;7.4.2 Indian Study;140
13.5;7.5 Performance Evaluation of a Sample of Indian Companies: An Empirical Research Work;141
13.5.1;7.5.1 Period of Study and Performance Measurement;141
13.6;Annexure-I: List of Sample Mergers and Acquisitions for Empirical Study;142
14;Chapter 8 Regulatory Insights for M&A in India;144
14.1;8.1 Overview of M&A Regulations;144
14.2;8.2 Companies Act 2013: Important Provisions Pertaining to M&A;145
14.2.1;8.2.1 Companies Act 2013;145
14.2.1.1;8.2.1.1 Procedural Changes;145
14.2.1.2;8.2.1.2 Special Cases;147
14.2.1.3;8.2.1.3 Cross-Border Mergers;147
14.2.1.4;8.2.1.4 Small Companies;147
14.2.1.5;8.2.1.5 Merger of Listed Company with Unlisted Company;148
14.2.1.6;8.2.1.6 Offer to Minority Shareholders;148
14.3;8.3 Regulatory Process for Mergers and Scheme of Merger;148
14.3.1;8.3.1 Example: Scheme of Merger Sun Pharma–Ranbaxy Merger;149
14.4;8.4 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;151
14.4.1;8.4.1 Meaning of Acquisition;151
14.4.2;8.4.2 Mandatory Open Offer in Case of Acquiring More Than 25% Shareholding of a Company;153
14.4.3;8.4.3 Mandatory Open Offer in Case of Consolidation of Holding;154
14.4.4;8.4.4 Mandatory Open Offer in Case of Acquiring Control;154
14.4.5;8.4.5 Direct and Indirect Acquisition;155
14.4.6;8.4.6 Example for Calculation of Offer Price;157
14.4.7;8.4.7 Open Offer Price;157
14.5;Annexure I;159
14.6;Annexure II;166
15;Chapter 9 Overview of Select M&A Deals;170
15.1;9.1 Accenture and the Confederation of Indian Industry (CII) Report;171
15.1.1;9.1.1 Operating Profits;172
15.1.2;9.1.2 Cost of Capital;173
15.2;9.2 Overview of Select Deals;173
15.2.1;9.2.1 Fortis and Escorts Heart Institute and Research Centre;173
15.2.1.1;9.2.1.1 Overview;173
15.2.1.2;9.2.1.2 Escorts Ltd.;174
15.2.1.3;9.2.1.3 Fortis Healthcare;174
15.2.1.4;9.2.1.4 Rationale for the Deal;174
15.2.1.5;9.2.1.5 Post-deal Outcome;175
15.2.2;9.2.2 P&G and Gillette;176
15.2.2.1;9.2.2.1 Overview;176
15.2.2.2;9.2.2.2 Proctor and Gamble;176
15.2.2.3;9.2.2.3 Gillette;176
15.2.2.4;9.2.2.4 Rationale for the Deal;177
15.2.2.5;9.2.2.5 Post-deal Outcome;177
15.2.2.6;9.2.2.6 Market Reaction;177
15.2.2.7;9.2.2.7 Value Gap;178
15.2.3;9.2.3 Vodafone–Hutch Acquisition: “A Way to Grow……Bigger May Be Beautiful”;178
15.2.3.1;9.2.3.1 Deal Structuring & Financing & Synergies;178
15.2.3.2;9.2.3.2 Success of the Deal;179
15.2.4;9.2.4 GlaxoSmithKline Merger: Mergers and Acquisitions—“A Way to Grow……Bigger May Not Be Better”;182
15.2.4.1;9.2.4.1 Synergies Which Were Expected from Merger;183
15.2.4.2;9.2.4.2 Stock Price Performance;184
15.2.5;9.2.5 Tata-Corus Acquisition—“A Way to Grow……Bigger May Be Burden”;186
15.2.5.1;9.2.5.1 Rationale of Deal;186
15.2.5.2;9.2.5.2 Reaction to the Deal;186
16;Chapter 10 Why Mergers and Acquisitions Fail?;191
16.1;10.1 eBay Skype;192
16.2;10.2 Daimler Chrysler;192
16.3;10.3 America Online and Time Warner;192
16.3.1;10.3.1 Sprint/Nextel;193
16.4;10.4 HP and Compaq;193
16.4.1;10.4.1 Kmart and Sears;193
16.5;10.5 M&A Failures in India;193
16.5.1;10.5.1 Sun Pharma and Taro;193
16.5.2;10.5.2 Apollo’s Failed Deal;194
16.5.3;10.5.3 Tata Motors Jaguar;194
16.6;10.6 Important Reasons for Failures;194
16.6.1;10.6.1 Owner’s Involvement;195
16.6.2;10.6.2 Exaggerated Valuation and Overpayment;195
16.6.3;10.6.3 Cultural Differences;196
16.6.4;10.6.4 High-Cost Debt;196
16.6.5;10.6.5 Flawed Intentions;197
16.6.6;10.6.6 Shareholders and Employees Interests Overlooked;197
16.6.7;10.6.7 Lack of Common Vision;197
16.6.8;10.6.8 Poor Communication;198
16.6.9;10.6.9 Weak Leadership;198
16.6.10;10.6.10 Due Diligence;198
16.6.11;10.6.11 Irrational Exuberance: It’s Always About Money;199
16.6.12;10.6.12 Poor Integration Management;199
16.6.13;10.6.13 Dubious Reasons;200
16.7;10.7 The Indian Scenario;200
16.8;10.8 Success Mantra of Mergers and Acquisitions;201
16.9;10.9 Conclusion;202
17;Chapter 11 Case Discussions of Mergers and Acquisitions;204
17.1;11.1 Hindalco–Novelis Acquisition;204
17.1.1;11.1.1 Background of Hindalco;205
17.1.2;11.1.2 Background of Novelis;206
17.1.3;11.1.3 Rationale for the Deal;206
17.1.4;11.1.4 Expected Synergies from the Acquisition;207
17.1.5;11.1.5 Problem Areas;208
17.1.6;11.1.6 Acquisition Process—Deal Structure and Financing;209
17.1.7;11.1.7 Funding the Deal;210
17.1.8;11.1.8 Valuation and Issues;210
17.1.9;11.1.9 Valuation Based on Peer Company Analysis;211
17.1.10;11.1.10 Valuation Based on Precedent Transactions;211
17.1.11;11.1.11 Valuation Based on DCF Analysis;212
17.1.12;11.1.12 Stock Market Reaction to the Deal;212
17.1.13;11.1.13 Hindalco: (for the Year 2007);213
17.1.14;11.1.14 Novelis Stock Performance;213
17.1.15;11.1.15 Post-Deal Outcomes;213
17.1.15.1;11.1.15.1 Year Ended 2008;213
17.1.15.2;11.1.15.2 Year Ended 2009;214
17.1.15.3;11.1.15.3 Year 2010;214
17.1.16;11.1.16 Stock Performance;215
17.1.16.1;11.1.16.1 Since the Date of Acquisition;215
17.1.17;11.1.17 Some Facts;215
17.1.18;11.1.18 Questions for Discussion;216
17.1.18.1;11.1.18.1 Hindalco Plant Locations;218
17.1.19;11.1.19 Domestic Market Share;218
17.2;11.2 Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq);219
17.2.1;11.2.1 A Megamerger;220
17.2.2;11.2.2 Background Note;221
17.2.2.1;11.2.2.1 HP;221
17.2.3;11.2.3 The Rationale for the Merger;222
17.2.4;11.2.4 The Merger Integration;223
17.2.5;11.2.5 Does the Merger Make Business Sense;223
17.2.6;11.2.6 Does the Merger Make Economic Sense;224
17.3;References;227