MERGERS & DEMERGERS ARE THE TWO SIDES OF THE SAME COIN.

Click to edit Master subtitle style

By: Jagadisha Behura

11/17/2011 ZIQQ

What does it specify:

1. Mergers. 2. Reasons for

Mergers.

3. Types of Mergers. 4. Examples of

Mergers.

5. Mergers &

Demergers. actually?

6. What is Demerger 7. Reasons for

11/17/2011

Demergers.

ZIQQ

22

Mergers
A merger is a transaction that results in the transfer of ownership and control of a corporation.
Merger, which is adopted by the corporate

11/17/2011

world forged so as to achieve growth for the company as whole, in other wordsunion of two or more commercial interest, cooperative, undertakings, bodies or any ZIQQ 33 other entities.

Possible Reasons for Mergers/Takeovers

Synergy: The combined company is worth more than the sum of its

parts. This includes cost reductions departments. M&A means job losses! bulk-buying discounts etc.

by

removing

duplicate

Economies of scale: Better deals because of increased order size, Increased

revenue and market share: Increased size of the combined company increases market power and ability to set higher prices. each others products and services, increasing sales.

Cross-selling: This is when the two companies involved in the deal sell Diversification: This helps smooth the earnings results of a company,

which over the long term, is rewarded by a higher share price.

Acquiring unique capabilities and resources: Sometimes its simply

11/17/2011 ZIQQ impossible for a company to create the technology, resource44 it etc

3 Types of Mergers
Economists distinguish between three types of mergers: Horizontal Vertical Conglomerate

1. 2. 3.

11/17/2011

ZIQQ

55

1.Horizontal mergers
When the merger of such two or more companies takes place which produce the similar kinds of products and compete directly with each other. The merger of sick companies results in the elimination of duplication of facilities and operations and broadening the product line, reduction in the finance for working capital, widening the market 27th feb and reducing area unhealthy competition. 2011

NACIL Examples: AirIndia-Indian Airlines; BoeingMcDonnell Douglas; Staples-Office Depot(unconsummated); Chase ManhattanChemical Bank; Southern Pacific RR-Sante Fe RR; 11/17/2011 ZIQQ 66 Pabst-Blatz; LTV-Republic Steel; Konishiroku

2. Vertical or streaming Mergers:

The process of vertical mergers are essentially a method of backward integration where the object is to ensure that the inputs of raw material are seamlessly available by merging the sources of their production with the main company which improves the efficiency of the merged entity besides also ensuring an outlet for the goods produced in the in the merged company.

Examples: Time Warner-TBS; Disney-ABC Capitol

Cities; Cleveland Cliffs Iron-Detroit Steel; Brown ShoeKinney, Ford-Bendix. Time Warner: cable operation TBS: TV programming (CBS, CW, The abc etc.) 10th Oct 1996
11/17/2011 ZIQQ 77

3. Conglomerate Mergers
When two or more companies carrying out different businesses merge with each other to diversify the product profile and thus ensure that the earnings are greater with the availability of resources and technology as well as staff that can ensure better productivity of the merged company. Perhaps the most important aspect of diversification is the aim to make the company simply too large to avert the threats of take over by other rival companies. Examples: Cardinal Healthcare-Allegiance; AOL-Time Warner; Phillip Morris-Kraft; CiticorpTravelers Insurance; Pepsico-Pizza Hut; Proctor & Gamble-Clorox. 11/17/2011 ZIQQ 88

Intel and McAfee

Aug 2011

Conglomerate merger

11/17/2011

ZIQQ

99

Ryannair attemptsFailed to mergers: takeover Aer Lingus

11/17/2011

ZIQQ

1010

Microsoft attempts to acquire Yahoo!

Failed mergers:

In the Microsoft Vs Yahoo!

takeover battle, Microsoft had their initial offer of $31 a share, a 62% premium on Yahoo!s preoffer price, rejected, Microsoft resolutely refused to go any higher 1111 and in the end gave up.

so they offered $33. But

11/17/2011 ZIQQ

11/17/2011

ZIQQ

1212

Why mergers sometimes dont work

Experts surveys suggest that over 75% of

mergers/acquisitions fail to achieve the benefits which they are supposed to.

Sometimes businesses demerge - split into two or

more independent businesses.

11/17/2011

ZIQQ

1313

What is Demerger actually? What does it specify?

Demerger Master name suggest converse of Click to edit as the subtitle style Merger/Acquisition, where the shareholders or owner of the parent company gains direct ownership of the demerged entity .Or in other words Demerger refer to the process of the separation of companies or Business units which are operating under one single umbrella. In simple words when one company, say X Ltd. having 10 undertakings, transfers one or more of 11/17/2011 ZIQQ its undertakings to a new company, say Y Ltd., it is

JOINT FAMILY Vs. NUCLEAR FAMILY

Click to edit Master subtitle style

All know that a Joint family have lots of advantages regarding all round development of a child ,sharing of 11/17/2011 ZIQQ thoughts and emotions with each other

together will definitely produce sound" The same theory

may apply here to the process of demerger. But this is probably one of the reason for Demerger.
11/17/2011 ZIQQ 1616

Reasons for Demergers

Lack of Synergy and Diseconomies of Scale
Synergy is the belief that the merging of two or more firms will have a greater outcome than the sum of the two individual firms. 1+1=3

In reality there may not be this synergy the two combined businesses do not impact on each other positively. There could be diseconomies as managers have to divide their time between two businesses which 11/17/2011 1717 have little to do ZIQQ each other with

Diseconomies of Scale
Cost s Said to occur when long-run average cost rises as output increases LAC

Economies of Scale Productive efficiency The level of Diseconomies of output at which Scale long-run average cost stops falling Minimum efficient scale as output 11/17/2011 ZIQQ

Common source: Management As the business grows it gets more complex

Outpu t

Reasons 4 Demerger
1. Inability to maximize return, thus giving chance for others. 2. Correction of To adjust with changing economic and political conditions. 3. Parent company's any false investment decision made regarding stepping into a totally different field of no Click to edit Master subtitle style expertise. 4. To raise capital gains from the assets acquired at the time of underperformance of the entity. 5. Utilization of financial and human resources for better profitable opportunities compared to the prevailing entity. 6. Selling of unwanted surplus in the business thereby carrying out the restructuring/reorganization strategy and get rid of theZIQQ entity. sick 11/17/2011

Reasons 4 Demerger
8. Maximization of shareholder's value -since it is felt that the value of the business when separated will be more than the value of the group. 9. To Focus more on the activities of various business units which is not possible by the giant corporate. Click to the proposition of forming a separate state (Similar to edit Master subtitle style for better administration and development Jharkand and Bihar ). 10.To get relief from strict government regulations which the entity may face before demerger as a result of other business. 11. Rating of the corporate becomes an easy affair relating to the specific business in which they have the 11/17/2011 ZIQQ expertise.

Demergers in INDIA:
Demerger of Dabur India in July 2003 FMCG group and Pharma group. Beneficial for both the group After Click to edit Master subtitle style demerger FMCG Group registered a compounded annual sales growth of around 12 per cent over the past three years, with net sales of Rs. 1,048.5 crore and net profit of Rs.72 crore in 2002-03. For The pharmacy business, on the 11/17/2011 ZIQQ

11/17/2011

Reliance industries Demerger August 2005 Reliance Industries, which focuses on exploration and production (E&P), refining and retailing, and Click to edit Master subtitle style petrochemicals is under the chairmanship of MIukesh Ambani and his younger brother Anil took charge of businesses comprising Reliance Communication
ZIQQ

L & T(Larsen & Toubro) demerger2004 Demerger of L & T cement division to a new entity CEMCO. The demerger process need to take place in 3 steps. Click to edit Master subtitle style In the 1st phase L & T would hive off the cement business into a separate company, Ultra Tech Cemco, where it hold 20% the balance 80% will be held by he existing L & T shareholders proportionately. 11/17/2011 ZIQQ

Various other demergers have taken a row Great Eastern Shipping, which is demerging its offshore business; Eveready Industries separated its tea business into McLeod Russell; Auto ancillary company Rane Madras transferred its investments into separate company and the investment company was also subtitle The demerger list also Click to edit Master listed. style includes Vardhman Spinning and Morarjee Realities. Also demergers of Bajaj Auto group are on the process. Gabriel Indiais also looking at demerging its engine bearings division and may also sell its Mumbai property. Cairn India on the reorganization of Cairn Energy PLC's Indian business prior to flotation.
11/17/2011 ZIQQ

Mergers & Demergers- 2 parts of the same coin

Merger and Demerger can be rightly described as the head and tail part of the same coin. The demerger process is now gaining importance more and more because of the added benefits, so corporate are not only interested in going for mergers but also are Click tofor demergers. Mergers have many advantages opting edit Master subtitle style ,so there is always a question when 2 big giant joining hands bring fruitful result to the entity formed then why the need for demerger. But there is also an answer to this -- joining is not always better than disjoint and this can be proved by the help of some live examples where bigger giants have disjointed into several segments and the result is very outstanding . Our point is how demerger have 11/17/2011 ZIQQ been a success and is going to gain more and more

Conclusion
So now trend is changing,after the long merger process taking place ,demerger is now taking its seat .The main aim behind demerger is to concentrate on the specific business in which they have expertise and allow other business units to raise their own Click to edit Master subtitle style capital .Also we are aware of the concept of "shareholder wealth maximization" which is thereby enhanced more due to demergers than by mergers. Despite the challenges, mergers and demergers are the two tools that hold an answer to the Indian corporate communitys thirst and relentless enterprise for a global presence today. Today, as the 11/17/2011 globalization are lashing at the doors of an ZIQQ waves of

Merger and Demerger Research

Each of the following are planned or completed mergers/demergers. For

each of them research:

The reasons for the merger (EG growth, economies of scale) The type of integration (EG horizontal or vertical) Was it agreed or hostile? How did stakeholders react e.g employees For mergers that did not complete, what was the reason
British Airways and Iberia Kraft and Cadburys Asda and Netto

11/17/2011

ZIQQ

LOreal and Body Shop

2727

Bibliography
Internet Wikipedia Times of Newyork Economic Times of India

11/17/2011

ZIQQ

2828

11/17/2011

ZIQQ

2929