Project on merger and acquisition PDF

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PROJECT REPORT(Submitted for the Degree of B. Honours inAccounting & Finance under the University ofCalcutta)TITLE OF THE PROJECT:“MERGER & ACQUISITION”SUBMITTED BYName of the Candidate : RAVI KANT BHALOTIARegistration Number: 988 -303-Name of the College: THE BHAWANIPUIR EDUCATIONSOCIETY CO...

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PROJECT REPORT (Submitted for the Degree of B.Com. Honours in Accounting & Finance under the University of Calcutta) TITLE OF THE PROJECT: “MERGER & ACQUISITION” SUBMITTED BY Name of the Candidate : RAVI KANT BHALOTIA Registration Number: 988-303-4569 Name of the College: THE BHAWANIPUIR EDUCATION SOCIETY COLLEGE College Roll Number: 123 CU exam Roll Number: 8820-69-6761 SUPERVISED BY Name of the Supervisor: DR. ALKA BHALOTIA Name of the College: THE BHAWANIPUIR EDUCATION SOCIETY COLLEGE

MONTH & YEAR OF SUBMISSION: Date: June, 2021

Annexure-IA

SUPERVISOR'S CERTIFICATE This is to certify that MR. RAVI KANT BHALOTIA a student of B.Com. Honours in Accounting & Finance of

THE BHAWANIPUR EDUCATION SOCIETY COLLEGE,

under the University of Calcutta has worked under my supervision and guidance for his/her Project Work and prepared a Project Report with the title “MERGER & ACQUISITION” which he/she is submitting, is his/her genuine and original work to the best of my knowledge.

Place: Kolkata

Signature:

Date: 31/05/2021

Name: DR. ALKA BHALOTIA Designation: PROFESSOR Name of the College: The bhawanipur education society college

Annexure-IB

STUDENT'S DECLARATION I hereby declare that the Project Work with the title “MERGER & ACQUISITION” submitted by me for the partial fulfilment of the degree of B.Com. Honours in Accounting & Finance under the University of Calcutta is my original work and has not been submitted earlier to any other University /Institution for the fulfilment of the requirement for any course of study. I also declare that no chapter of this manuscript in whole or in part has been incorporated in this report from any earlier work done by others or by me. However, extracts of any literature which has been used for this report has been duly acknowledged providing details of such literature in the references.

Place: Kolkata

Signature:

Date: 31/05/2021

Name: RAVI KANT BHALOTIA Registration Number: 988-303-4569 College Roll Number: 123

ACKNOWLEDGEMENT First of all thanks to God, for giving me and my friends the strength and will to complete this task just in time. Even though we faced a lot of difficulties while trying to complete this task, the group still managed to complete it and we are glad about it.

A special thanks to Mr Abhishek Pandey, for being such a good guidance to us while we were doing this task. He had given us an appropriate example and knowledge in order to make us understand more about this topic. He spends his time to explain the execution of this idea in all the way.

I also appreciate CA Shruti Chamaria, for her support to me to do this project in all the way and made it possible. We also want to thank other groups who were willing to share their information about this topic. They gave us a lot of new ideas about the task.

Also a great thanks to my family and friends who tried their best to give their support either by giving me a lot of encouragement to keep up with this task or by supporting us financially and pay all the cost required to complete this task.

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CONTENTS S. NO.

TITLE

PAGE NO.

1.

COVER PAGE

1

2.

SUPERVISOR’S CERTIFICATE

2

3.

STUDENT’S DECLARATION

3

4.

ACNOWLEDGEMENT

4

5.

6.

CHAPTER 1: INTRODUCTION TO MERGER & ACQUISITION 1.1: Introduction 1.2: objectives 1.3: Benefits 1.4: Limitiation 1.5: Procedure 1.6: Valuation 1.7: Participants 1.8: Factors responsible for success 1.9: Factors responsible for failure 1.10: Research Methodology

07 – 07 08 – 11 12 – 13 14 – 14 15 – 16 17 – 17 18 – 18 19 – 20 21 – 21 22 – 22

CHAPTER 2: STUDY OF MAJOR MERGER & ACQUISITION 2.1: Tata motors & ford motors: 2.2: Tech mahindra & mahindra satyam: 2.3: Vodafone & Idea

24 – 25 26 – 28 29 – 30

7.

CHAPTER 3: DATA FINDING & ANALYSIS

31 - 37

4.

CHAPTER 4: CONCLUSION

38 - 39

5. 6.

CHAPTER 5: BIBLIOGRAPHY CHAPTER 6:QUESTIONNAIRE 5

40 - 41 42 - 44

CHAPTER 1:

INTRODUCTION TO MERGERS & ACQUISITION

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1.1: INTRODUCTION TO MERGERS & ACQUISITIONS In a general sense, mergers and acquisitions are very similar corporate actions - they combine two previously separate firms into a single legal entity. Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term. A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders. A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.

A takeover, or acquisition, on the other hand, is characterized as the purchase of a smaller company by a much larger one. This combination of "unequal" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company's management. Unlike in a merger, in an acquisition, the acquiring firm usually offers a cash price per share to the target firm's shareholders or the acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio. Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders.

In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about.

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1.2: OBJECTIVES BEHIND MERGERS & ACQUISITIONS There are many reasons or factors that motivate companies to go for mergers and acquisitions such as growth, synergy, diversification etc. 1. Growth: One of the most common reason for mergers is growth. There are two broadways a firm can grow. The first is through internal growth. This can be slow and ineffective if a firm is seeking to take advantage of a window of opportunity in which it has a short-term advantage over competitors. The faster alternative is to merge and acquire the necessary resources to achieve competitive goals.

2. Synergy: Another commonly cited reason for mergers is the pursuit of synergistic benefits. The most commonly used word in Mergers & Acquisitions is synergy, which is the idea of combining business activities, for increasing performance and reducing the costs. Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses. This is the new financial math that shows that 1 + 1 = 3. That is, as the equation shows, the combination of two firms will yield a more valuable entity than the value of the sum of the two firms if they were operating independently.

Value (A + B) > Value (A) + Value (B) 3. Diversification : Other reasons for mergers and acquisitions include diversification. A company that merges to diversify may acquire another company engaged in unrelated industry in order to reduce the impact of a particular industry's performance on its profitability. The track record of diversifying mergers is generally poor with a few notable exceptions. A few firms, such as General Electric, seem to be able to grow and enhance shareholders wealth while diversifying. However, this is the exception rather than a norm. Diversification may be successful, but it needs more skill and infrastructure than some firms have.

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4. 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. This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to theoretically the same revenue stream, thus increasing profit.

5. Increase Market Share & Revenue: This reason assumes that the company will be absorbing a major competitor and increasing its power (by capturing increased market share) to set prices. 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. Example-Premier and Apollo Tyres,

6. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the distributors, a business can eliminate a level of costs. If a company buys out one of its suppliers, it is able to save on the margins that the supplier was previously adding to its costs; this is known as a vertical merger. If a company buys out a distributor; it may be able to sale its products at a lower cost.

7. Eliminate Competition: Many mergers and acquisitions deals allow the acquirer to eliminate future competition and gain a larger market share in its product's market. The downside of this is that a large premium is usually required to convince the target company's shareholders to accept the offer. It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower in response to the company paying too much for the target company.

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8. 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 and vice versa.

9. Procurement of production facilities: Procurement of production facilities may be the reason for acquiring company to go for mergers and acquisition. It is a kind of backward integration. Acquiring Firms will take the decision of merging with another firm who supplies raw material to acquiring firm in order to safeguard the sources of supplies of raw material or intermediary product. It will help acquiring firm to bring economies in purchasing of raw material. It will also help to cut down the transportation cost. Example- Videocon takes over Thomson picture tube in China to procure supply of picture tube required for producing television sets.

10. Market expansion strategy: Many firms go for mergers and acquisitions as a part of market expansion strategy. Mergers and acquisitions will help the company to eliminate competition and to protect existing market. It will also help the firm to obtain new market for promoting their existing or obsolete products. Example, Lenovo takes over IBM in India to increase market for Lenovo products like desktops, laptops in India.

11. Own development plans: The purpose of mergers & acquisition is backed by the acquiring company's own developmental plans. A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc. but might feel resource constraints with limitations of funds and lack of skill managerial personnel. It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities; secure additional financial facilities eliminate competition and strengthen its market position.

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12. Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through

business

combinations. The combining corporate aims at circular combinations by pursuing this objective. 13. Financial synergy: Financial synergy may be the reason for mergers and acquisitions. Following are the financial synergy available in case of mergers and acquisitions; I. Better credit worthiness- This helps companies to purchase good on credit, obtain bank loan and raise capital in the market easily. II. Reduces cost of capital- The investors consider big firms as safe and hence they expect lower rate of return for the capital supplied by them. So the cost of capital reduces after merger. III. Increase debt capacity- After the merger the earnings and cash flows become more stable than before. This increase the capacity of the firm to borrow more funds. IV. Rising of capital- After the merger due to increase in the size of the company, better credit worthiness and reputation the company can easily raise the capital at any time. 14. General gains: I. To improve its own image and attract superior managerial talents to manage its affairs. II. To offer better satisfaction to consumers or users of the product. 15. Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company. ► Ahmadabad Cotton Mills Merged with Arvind Mills ( Rs =3.34 crores) ► Sidhaper Mills merged with Reliance Industries Ltd.(Rs. 3.34 crores) 11

1.3: BENEFITS/NEEDS OF MERGERS & ACQUISITIONS BENEFITS Mergers and acquisitions is the permanent combination of the business which vest management in complete control of the business of merged firm. Shareholders in the selling company gain from the mergers and acquisitions as the premium offered to induce acceptance of the merger or acquisitions. It offers much more price than the book value of shares. Shareholders in the buying company gain premium in the long run with the growth of the company. Mergers and acquisitions are caused with the support of shareholders, managers and promoters of the combing companies. The advantages, which motivate the shareholders and managers to give their support to these combinations and the resulting consequences they have to bear, are briefly noted below.

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From shareholders point of view: - Shareholders are the owners of the company so they must get be benefited from the mergers and acquisitions. Mergers and acquisitions can affect fortune of shareholders. Shareholders expect that investment made by them in the combining companies should enhance when firms are merging. The sale of shares from one company's shareholders to another and holding investment in shares should give rise to greater values. Following are the advantages that would be generally available in each merger and acquisition from the point of view of shareholders; 1. Face value of the share is increased. 2. Shareholders will get more returns on the investments made by them in the combining companies. 3. Sale of shares from one company's shareholder to another is possible. 4. Shareholders get better investment opportunities in mergers and acquisitions.

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• From managers point of view: - Managers are concerned with improving operations of the company, managing the affairs of the company effectively for all round gains and growth of the company which will provide them better deals in raising their status, perks and fringe benefits. Mergers where all these things are the guaranteed outcome get support from the managers.

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From Promoters point of view: 1. Mergers offer company's promoters advantages of increase in the size of their company, financial structure and financial strength. 2. Mergers can convert closely held and private limited company into public limited company without contributing much wealth and losing control of promoters over the company.

• From Consumers point of view: - Consumers are the king of the market so they must get some benefits from mergers and acquisitions. Benefits in favour of the consumer will depend upon the fact whether or not mergers increase or decrease competitive economic and productive activity which directly affects the degree of welfare of the consumers through changes in the price level, quality of the products and after sales service etc. Following are the benefits that consumers may derive from mergers and acquisitions transactions; 1. Low price & better quality goods: - The economic gains realized from mergers and acquisitions are passed on to consumers in the form of low priced and better quality goods. 2. Improve standard of living of the consumers: - Low priced and better quality products directly improves standard of living of the consumers.

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1.4: LIMITATIONS OF MERGERS & ACQUISITIONS DRAWBACKS

Merger or acquisition of two companies in the same field or in diverse field may involve reduction in the number of competing firms in an industry and tend to dilute competition in the market. They generally contribute directly to the concentration of economic power and are likely to lead the merger entities to a dominant position of market power. It may result in lesser substitutes in the market, which would affect consumer's welfare. Yet another disadvantage may surface, if a large undertaking after merger because of resulting dominance becomes complacent and suffers from deterioration over the years in its performance. Following are some disadvantages of mergers and acquisitions;

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Creates monopoly- when two firms merged together they get dominating position in the market which may lead to create monopoly in the market.

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Leads to unemployment-Raiders shouldn't have the right to buy up firms they have no idea how to run - the employees who have spent their lives building up the firm should be making the decisions.

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Raiders become filthy rich without producing anything, at the expense of hardworking people who do produce something.

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M&A damages the morale and productivity of firms.

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Corporate debt levels have risen to dangerous levels.

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Managers pressured to forego long-term investment in favour of short-term profit.

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Shareholders may be payed lesser dividend if the firm is not making profits. There may be a possibility that shareholders would be paid less returns on investment if the company is not earning enough profit.

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Corporate raiders use their control to strip assets from the target, make a quick profit, destroying the company in the process, throwing people out of work.

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1.5: PROCEDURE OF MERGER 1. Search for merger partner- The first step in mergers is to search for merger partner. The top management may use their own contact in the same line of economic activity or in the other diversified field which could be identified as a better merger partners. Such identification should be based on the detail informati...