Mergers and acquisition terminology

1 INTRODUCTION

The purpose of this chapter is to give an understanding of mergers and acquisition terminology. Secondly to look in to the objectives and limitations of the thesis.


1.1 Background

Acquisitions have become the most dramatic manifestation of vision and strategy in the corporate world. With one single move, firms can change the course of their future and create value for their whole and sole shareholders. There are different types of merger and acquisitions. In merger the assets of two different companies are combines to establish a new legal entity. In the case of control or acquisition, the control of assets is taken over from one company to another. Acquisitions may be defined as a process buying one company by another. It's also known as takeover. An acquisition friendly or hostile, friendly acquisitions is when both companies cooperate and negotiate terms and conditions and hostile acquisition is when the target company is unwilling to be brought and has no knowledge of the offer. The core motives are to increase share holder value, economies of scale, increase market share, reduction in tax etc. Acquisition is often seen as an access into unfamiliar territories using the established infrastructure. From a perspective of Indian organisations, the relaxations of regulations, considerable market expansion, and thus increased profitability has provided a conducive environment for organisation to extent their overseas and acquisitions are being looked upon as the most viable mode of achieving the objective of market expansion, product portfolio increase and economic growth. It is also seen as an access into unfamiliar territories of the acquired firm as to gain preferential entry into distribution channels acquire new product features quicker than internal development, access to new technology.

A company creates shareholder value when the shareholder return exceeds the required rate of return to equity or the cost of equity. A company can create shareholder value when it outperforms expectations. Creating shareholder value would bring companies with rewards like raising the present value of owner's investment and thus leading to an increase in market value of the company's securities, recognising the risk or uncertainties etc.

A successful acquisition depends upon the strategy of the parent company. This research is being done to try to give an insight about the Indian acquisition and merger scenario, the process, the development in the past years and what will be the future of the Indian economy in context with acquisitions.

Acquisitions have become the most dramatic manifestation of vision and strategy in the corporate world. With one single move firms can change the course of their future and create vale for their future and create value for their whole and sole shareholders. (Puranam et al., 2006) In broader sense, an acquisition could be defined as

"An acquisition is the act of buying more that 50 % of vendor's equity after which the vendor's assets are incorporated into those of the acquiring company with the vendor's legal entity getting disappeared" (Lees, 2003)

In the recent corporate scenario, Acquisitions, where one company controls the other, are gaining importance with the concept of merger fading out. Thus M&A's for practical purposes essentially mean "Acquisitions". (Buckley et al., 2002) The core motive behind this move is to achieve new business heights through expansion either geographically or industry wise. Yet there is evidence of inter-industry acquisitions, where both companies are from unlike industries. A well known example is the Times Warner acquisition of AOL convergence. (Johnson et al., 2003) Although the concept of M&A initiated in late 1890's, the real wave of acquisitions started off in 1980's when the concept of hostile takeovers openly challenged corporate management. (Borghese et al., 2001) In the year 1997, worldwide, M&A's alone were valued more than all of the acquisitions completed in the 1980's (Hitt et al., 2001) since 1998, to the year 2000, the value of international acquisitions rose to a value of nearly U.S. $4 trillion in terms of the stock value of the transactions announced. (Henry 2002)

The acquisition activity initiated by Western and European multinationals venturing into developing economics has off late, been reversed by the developing countries, especially India and China, This reversal of trend of the acquisitions of companies ruling in the developed regime by those established in the developing countries marks a turn around of sorts which is forecasted to grow into the coming decade.

The Indian economy has grown rapidly and has been emerging at the top. This is in many different areas in the tertiary sector for example Information technology, Research & Technology, pharmaceutical sector, infrastructure sector, utility, consumer retail, telecommunication, financial services sector, media sector, hospitality sector etc. India`s economy is the second fastest growing economy in the world with a staggering GDP of 9.3%. This growth is well synchronized with service sector valued at 10.6% and industry at 9.7% in the first quarter of 2006-07. Investors, large companies and industrial houses view the Indian market as an up a coming growing economy, whereby increases the amount of returns paid back on capital and dividends paid out to shareholder. There is a dramatic increase in cross border and domestic mergers and acquisitions. It is being believed by the leading investment banks that the Mergers and Acquisitions deals in india will be above US$ 100 billion in the coming years, which is double, last year's and has increased more than four fold than in the year 2005.In the first couple of months of 2007, Indian corporate arena seen deals of M&A worth nearly US$ 40 billion. Mahindra & Mahindra's takeover of 90 percent stake in Schoneweiss in 2007 was the first overseas takeover by an Indian company. One of the biggest headlines was the Tata`s acquisition of Corus for over US$ 10 billion. Also Hutchison Whampoa of Hong Kong sold their stake in Hutchison-Essar to Vodafone for a staggering US$11.1 billion. The food division of MTR a Bangalore based firm bought by investor from ORKALA for nearly US$100million.The corporate revenue in India in the last five to six years have been on the rise by 20 to 25 percent. Service sector has also seen several M&A deals.pricewaterhousecoopers acquired RSM Ambit a taxation practitioners. For such companies, M&A activity is an effective strategy to grow their businesses activity.

Mergers are the joining together of two or more companies or organizations, which would result in one or more companies loosing their identity without seeing any new investment is made through this particular process. However, an exchange of shares takes place between the parties involved in the process. Generally, the company that survives is the buyer which retains its identity and the seller company is extinguished.

Source(www.companylawonline.com)


1.2 Reasons for Acquisitions:

Acquisitions are also often seen as an access into unfamiliar territories using the established infrastructure of the acquired firm like; to gain preferential entry into distribution channels, acquire new product features quicker than internal development, access to new technologies, economies of scale etc. The drastic development in the resources and competences of the acquiring company helps to gain competitive advantage in the respective industry. The major reasons for acquisitions are to increase the market share in a particular industry so as to be the price leader. Entering into new markets helps broaden the companies' portfolio and at the same time spread risks. Reducing competition crucially underpins the decision for going into M&A activity as it eliminates one major competitor in this highly competitive arena. Thus this activity, which is the result of the widespread globalization, is considered to be the most significant, most conductive, wealth driving decision by every business in world. (CII, 2007) Although it is one of the simplest choices for companies planning for expansion, it is most difficult and complex task to implement. Several empirical studies have identified acquisitions ceasing as an unsuccessful transaction due to pitfalls that the companies fail to foresee.

Problems that are usually faced by companies are synergy not realized, lack of cultural fit, and risk of debt due to over payment, lack of due diligence, tacit knowledge efflux and reduction in shareholder value. (Johnson et al., 2003) Hence the key factors are to develop a robust, well managed process that would help perform activities well in time and at early stages of the deal and also by allocating proper responsibilities for each tasks involved. A highly skilled, adaptive, dedicated and cognitive process management team is likely to create successful acquisitions deals. Also it is very significant for the board members show keen interest while performing their role in acquisitions transaction, as chances of gaining success raises by 48%. (KPMG, 2002)

Managerial motives are also achieved with acquisitions. Some motives are to pursue growth in the size of their firm, since their status, power, remuneration are functions of the firm size which is also called as the empire-building syndrome. To deploy their underused managerial talents and skills this is called as self-fulfillment motive. To improve the value of the overall business for shareholders and an advantage of large scale production that lead to lower unit cost which is called as economies of scale to minimize cost of financial distress and diversify risk which is called as job security motive. And finally to avoid being taker over by other companies called as job security motive.


1.3 Acquisitions and Shareholder Value:

A company creates shareholder value when the shareholder return exceeds the required rate of return or the cost of equity to equity. In simple words it can be stated that company creates shareholder value when it outperforms expectations. Similarly, if the shareholder return does not exceed the cost of equity then it is said the company has destroyed shareholder value.

The formula for created shareholder value is as follows:
Created Shareholder Value = Shareholder value added - (Equity market value x Ke)

Creating shareholders value is significant as shareholders are the owners of the company and the fundamental rationale for company's existence should be to bring benefit to their owners. (Lumby et.at, 2003) Also creating shareholder value would bring companies with rewards like, raising the present value of owner's investment thus leading to an increase in market value of company's securities, recognising the risks or uncertainty, recognising the timing of returns by taking into account the trade-off between the various returns and associated risk, considering the shareholders return by taking into account the payment of dividend to shareholders. (Prasanna, 2004)

From the discussion in the previous section it can be stated that acquisitions is a highly risky activity. Companies have witnessed abrupt variations in share values while the acquisition deals are announced and completed. Research conducted by KPMG found that 83% of acquisitions were unsuccessful in creating any business gain as regards shareholders value. There may be several reasons for this failure which were discussed in the previous section. With acquisitions, the shareholder wealth in maximization criterion is achieved when the added value created by acquisition exceeds the cost of acquisition.

While cross border acquisitions are a positive step for companies to grow quickly and increase market presence, there are also related barriers in it. Some mergers and acquisitions fail due to many reasons. Some of the reasons are explained below.

* Inspection problem- In M&A there is a transaction between the buyer and the seller. For the transaction to take place the buyer should place a higher value of the firm to be sold that the seller. This may be because the buyer has less information bout the company to be sold than the seller or the buyer has some special knowledge or resources that will increase the value of the target firm, and will be willing to pay more than the value the seller places.

* This type of asymmetry can create what is called the "lemons problem". This happens when the buys don't have sufficient information about he firm to be sold and are likely to offer a price that reflects the condition of an average quality business. The seller is likely to accept the average price if there is something wrong with the firm. Even if the firm for sale is just an average quality business, the buyer firm is likely to have more knowledge about the firm and is likely to perform better.

* Negotiation problem- It is a complex process while doing cross border acquisitions. There are a lot of opinions, lack of information and differences in culture which makes the deal complex. It is because of these reasons why some acquisitions fail and takes more time than expected to finalise deals. Some guidelines has been prepared by one author (Sebenius 1998) when negotiating deals. First is to be prepared for a long process. Second is to divide players into allies, potential allies and opponents as these are present in all kinds of transactions. Third is to handle these groups differently and sequentially. Fourth is to ensure that the deal remains viable and continues to create value even if the deal is done.

* Integration problem. Cross border acquisitions are much more complex than domestic acquisitions. One study suggests that (Shrivasta 1986) cultural fit has a major effect on post acquisition performance. Whenever companies in India, Korea does cross border acquisition, the problem they face is different culture, different managerial norms, different compensation and regulatory environment. Companies that allow multiculturalism perform better than less permissive firms.


1.4 Other barriers for acquisitions are structural barriers, technical barriers:

Structural barriers are divided into three types, statutory, regulatory and infrastructure. In statutory barriers involves discriminatory tax laws against foreign acquirer and rights of union workers who have a say in takeover and strong redundancy rights. In regulatory involves antitrust regulation, rules of stock exchange and professional self regulatory bodies.

Infrastructure barrier involves the absence of legal, accounting and investment banking service. Technical barriers involve the management of the firm. The management includes families who hold a majority of shares, two tier boards which cannot be removes or changed quickly.


1.5 Objectives:

The present study is an attempt to check the performance of merger and acquisition deals in India in long run. With the following objectives

*To examine the rationale behind mergers & acquisitions.

*To understand the advantages & disadvantages of mergers & acquisitions in India.

*To examine the need for growth through mergers & acquisitions.

*To examine the growth of M&A deals in recent time in India.

To fulfill the first objective data collected from the last 19 years was studied (year 1988 to 2006). It was found that generally for each succeeding year there was an increase in the mergers and acquisitions activity and the amount attributed for such deals. The number of deals rapidly increases with 113.3% in 1992 possibly due to a liberalization effect on merger and acquisition deals. Between the years 2001 to 2004, although there was an overall decrease in the number of deals, there remained to be a year on year increase. In conclusion there is certainly an increase in merger and acquisition deals in India in recent years. Source(www.puchd.ac.in)

Considering the limited research on mergers and acquisitions in Indian industry, research that has been studied has been aimed at reviewing the operating performance of firms going through mergers in the Indian industry. The study has further attempted to investigate and test if there are any significant deviations in the results achieved by mergers in different industry sectors in India, by analyzing sub-samples representing industry sectors.Source (www.eurojournals.com)


1.6 Limitation of the study:

Another case study parallel to this report could be examined further to get a more detailed result. More parameters could be used even in the same report to reach a different more in-depth conclusion. However the study could not be done on all the cases of mergers and acquisition for the selected time period, which would have given a more in-depth look on the results.

Further studies may help to develop some alternate measures of merger-related gains as financial measures have limitations to capture the full impact of merger on corporate performance. However, a study providing detailed insights into the reasons and patterns of post-merger corporate performance across the types of mergers and industry would be useful.

The recent research shows that management cannot rely solely on mergers & acquisition as a source of growth and profitability. A case study based research parallel to this study could be initiated to get nearer to reality show.


1.7 Summary:

This chapter has outlined the meaning of mergers and acquisitions. It has also covered the reason for acquisition in the corporate world. Understanding and outlined the objectives of the thesis which is mergers and acquisitions in India and its effects on it .It has also outlined the limitations attached to the study.



2 LITERATURE REVIEW

The purpose of this chapter is to provide an overview on what research been done on mergers and acquisitions in India. .It is classified in to three parts which are acquisitions and mergers in India and cross border acquisitions and mergers by Indian firms, understanding Indian foreign direct investment and effects of mergers and acquisitions on it, motives of the Indian firms behind mergers and acquisitions.

2.1 Indian Acquisitions:

As it is said that recession also brings opportunity for some and the same applies to Indian firms. The recent downturn gave Indian companies an opportunity to look locally. The figures from the first quarter of 2008 suggest that only 79 deals were cross border out of 135.even in the first quarter of 2009 only 15 M&A`s were cross border out of 54.Cross border deals took backseat due to the credit crunch crisis .Easy and cheap availability of credit from the developed financial institutions cemented the big firms like Tata motors Hindalco.The easy of availability hit in the face of big firms in 2007 because of the credit crunch and the firms faced a reality check. That made companies more cautious and turn their attention to local consolidations.

According to the economic tmes, Out of the 267 deals from January - December 2009 (worth little over US$10 billion)142 were local domestic deals worth nearly US$6 billion and 125 were cross border worth nearly over US$4 billion, that includes both inbound and outbound investment deals. The merger and acquisition deals flow shows a clear sign of domestic growth at US$ 5.8 billion during the January to December 2009 and plummeting cross border deals totaling at US$ 4.23 billion, that is because of the consolidation and restructuring trend in many industries.

A economic times report suggests, that private equity investments (including qualified institutional placements) were nearly at US$ 11.17billion from January to December 2009.The total overall value of mergers and acquisitions during the time period between January to December is almost reduced to half at US$ 21.20 billion, as compare to US$ 41.54billion and US$ 70.14 billion in 2008 and 2009 respectively. There were 488 deals occurred in 2009 as compare to 766 deals in 2008 this clearly indicates the drop. Source (www.merinews.com)

Globalization and fierce competition has been one of the major reasons for firms going for several mergers and acquisitions. According to the recent study mergers and acquisitions activity in India in 2010 so far arose to worth nearly US$3 billion due to improved signs of liquidity in the market. The merger and acquisition activity seen bearish trend in India because of the credit crunch in 2008 and 2009.The present optimism about the world economy may lead India to even greater level of merger and acquisition activity in 2010.In first few months of 2010 the telecom, banking and logistic, insurance and finance sector were the most active sectors in terms of takeover deals worth US$ 2,180 million, US$ 164 million and US$ 117 million respectively, according to financial research services provider, VCEdge. Source (www.dnaindia.com)

India had seen great success when it came to mergers and acquisitions in 2007 and 2008 but due to the credit crisis 2009 was more of a subdued. Since the drastic fall it is on a sharp rise in the first quarter of 2010.China is the only country in the continent to have greater level of mergers and acquisitions activity than India.

The principal reasons for India to go global are product diversification, market entry and proficient revenue growth. However many firms are motivated by the fact of highly competitive domestic markets and the need for assets and capabilities that are lacking in India. (Accenture, 2006) Liberalized regulations in cross border capital movements, conducive and stable economic and political environment, larger currency reserves and easy availability of debt both at home as well as from international banks inspired organizations to opt for strategic move. (Hindu Business Line, 2002) Acquisition transactions has served a major hand for India Inc. to emerge as global power and will continue to be as the number of acquisitions would be twofold by 2010. Appealed by the market and higher value offerings by developed economies, India Inc is making massive number of acquisitions in North America, Europe and developed economies in Asia.

It has been observed from most media references that there is trend in Indian companies' overseas acquisitions in the recent financial decade. Statistics, from research conducted by Accenture in 2006, proved 85 % rise in overseas acquisition over a decade by Indian companies. Year 2006 is considered as milestone year in acquisition history as the total value of deal struck in 2006 was US$15.3 billion as compared to the Previous Year (P.Y) value of US$9.5 billion.

Most outbound deals took place in the European territory having 42% of total deal value whereas second highest was North America with the share of 24% of total deal value. (Hindu Business Line, 2007) Research agencies assert that this number would increase in a couple of years, which would help consolidate the Indian economy. Although positive outcomes of acquisition activities are often highlighted, the underlying risks of the same should not be ignored. The company's motive behind choosing this strategic mode for expansion is ill defined and is the major reason for fatigue in creating any value for the shareholder. The researcher in the following part critically reviews the literature on motive behind this acquisition of organizations abroad.

According to the research conducted by Accenture, 2006 the core motives behind overseas acquisitions for India are product diversification, revenue growth and new market entry geographically. Also due to severely competitive domestic markets in India, the comparably attractive overseas markets with their higher value offerings motivate companies to go global in search of a new customer base. The Indian government has also played a pivotal role in motivation organizations to opt for this type of expansion by a relaxed regime of regulations for overseas investments and has made easy funding availability for such investments abroad. Similar findings related to financing factor of acquisitions by India Knowledge @ Wharton, (2006) are published. According to them this willingness of lenders to make easy availability of funds for funding massive acquisitions deals is pinpointed by lower gearing ratio of companies, strong underlying cash flows, balance sheets cognitive management teams, Moreover, the other reason for lenders to positively agree to finance the acquisition deals is that as they find the global market to be buoyant and can expect higher returns from the same. Also it has been observed that organizations prefer cash transaction over stock swaps due to luring tax benefits. All these elements are the reasons for motivation of Indian organizations to go global. Furthermore FICCI has asked the Indian government to provide political risk cover to organizations acquiring 25% or more equity abroad. In its study 'India Inc.'s acquisition abroad', 2006 it has stated that such facilities would show manifold increase in overseas acquisitions, thus in turn strengthening the Indian economy. Matt, (2006) in his report 'Going Global' reiterates that the acquisition is ultimately driven to gain competitive advantage and sustainable development. Acquisitions provide a strong foundation for companies to gain profit and at the same time create shareholder value. Other motives behind Indian acquisitions are that overseas markets bring higher margins, volumes and opportunities for development in other areas of commercial interest. The Economist Intelligence Unit Ltd, (2006) also asserted that the proliferation in outbound acquisition by Indian firms. It states that companies plan for overseas acquisition as their business strategy and this number is expected to rise by 70% in coming 4-5 years. The Information Week, (2006), however published new reasons for Indian overseas acquisitions in its article 'Growth Plans'. It identifies from its research that owing to a severe dearth in skilled tech workers, poor infrastructure and transportation, ascending wage scale with increased competition and low cost markets in the Indian business periphery, the tech companies are seeking overseas for better options and acquisitions is considered to supplement the organic growth.

Considering this appealing, enriching and developing background for acquisitions by India Inc. research on India companies would prove to be credible for all those Indian companies embarking on overseas acquisition.

Graphical representation of Indian outbound deals since 2000.

The main benefits for mergers and acquisitions by Indian firms are

* To build critical mass in manufacturing, marketing and for research infrastructure.

* To establish a front end presence.

* To diversify into new areas such as other geographies, therapeutic segments, to built synergies for new products

* To improve and enhance technology portfolio, product portfolio and intellectual property portfolio

* To catapult market share.

In a research conducted by Grant Thornton, India has made 92 mergers and acquisitions deals valued at US$6 billion in the first two months of 2008. India had outbound deals worth US$2.8billion which had far exceeded inbound deals worth US$.45 billion. The total domestic deals were valued at US$2.7 billion.


2.2 Foreign Direct Investment :

FDI occurs when a firm invests directly in facilities to produce and/or market a product in a foreign country. When a firm undertakes foreign direct investment it becomes a multinational corporation. The parent distinction between a home and host country are that the parent firm of the multi national corporation located in the home country, is the source country for outward FDI. The Host country is the destination country for inward FDI. FDI has many positives impacts on the host country. FDI can make a positive impact on the economic growth of the host country by providing technology, capital, and management resources which otherwise would not be available.


2.3 Trends in Foreign Direct Investment

Foreign direct investment is seen as a way of circumventing trade barriers. It has also led to a dramatic change in the political and economic situations in many parts of the world.

India shares its place with China being one of the emerging superpowers in the developing world. Both India and China have enjoyed economic growth, although China has grown substantially faster. Both these nations have different entrepreneurial activity that have given rise to home grown enterprise to compete a global stage. Foreign direct investment in India has grown dramatically since 1990, although has showed a decline between 2002- 2004.


2.4 FDI in India

In the year 2002-2004, India had strict restrictions on foreign direct investments. But due to the fast growth of the economy and much favorable investment nature and liberal policy changes and procedural relaxations has given rise to a large global corporation investing in India. India's FDI reached US$ 25 billion in the year 2007-2008 as compared to US$15.7 billion in 2006-2007. Huge amount of FDI came to india through Non resident Indians, international companies and various investors. The inflow if FDI boosted the economic growth of India. There have been many advantages in India in terms of increased capital inflow, improved technology, efficient and effective management expertise and a major advantage is the access to international market (Source www.ibef.org)

The decline of foreign direct investment during the years was because of the sharp drop in the equity inflows as foreign direct investment comprises of equity inflows, reinvested earnings and other capital. Also the Indian position in welcoming foreign direct investment is more complex compared to China. Before 1990, India had very strict restrictions against inward FDI, but gradually relaxed its restrictions. The reason can be because of the country's roots in strong nationalist's foundations and a desire not to be dominated by any foreign entity.

Overseas investments by India has increased and US$.7 billion in 2000-2001 to US$11 billion in 2006-2007. Developing countries are opening up their economy to India for investments and FDI inflows and look to India for knowledge transfer and skill development and training, and investments to increase African economies to higher growth. Study done by KPMG on survey on corporate investment, says that India will see the largest overall growth in its share in foreign investment in the manufacturing sector. Its share in foreign investment is likely to grow by 8 per cent to 18 percent over the nest 5 years helping India to come up to the fourth from the seventh leaving behind Germany, UK and France in the investment league table.


2.5 Motives behind M & A:

It is of prime importance to understand the reasons behind mergers and acquisitions. Major factors which tempt firms to seek or sought mergers and acquisitions are:

* Economies of Scale: This generally indicates a method in which the idea is to decrease the per unit cost through mass production or through increased level of production, since fixed cost remains the same over an increased production. As it is known that the bargaining power increases with the increase in products .Mergers and acquisitions is an opportunity for the companies to decrease the per unit cost by merging the same departments thus it increases the production and decreases the cost while fixed cost remains the same which in return increases the market share and profitability.

* Increased revenue /Increased Market Share: This practice ensures increasing level of market share and the less competition and increases firm's power (i.e. increased market share) to set prices.

* Cross selling: a bank acquiring a stock broker could then sell its products to the customers of stock broker, while the broker can take the customers of bank for brokers account.

* Corporate Synergy: Efficient use of complimentary resources. Strategy to reduce cost and enhance revenues i.e. eliminating unnecessary expenses which are associated with running the business.

* Geographical or other diversification: This is to diversify risk and to help grow company's finances and growth. Reach to new markets. It also helps achieve long term stream lining of stock prices and share holder's value. It gives investors more confidence on the company. Source (www.companylawonline.com)


2.6 Summary:

This chapter has outlined an overview on what research been done on mergers and acquisitions in India and through this to point out the effects of it on Indian industries. This chapter has also outlined the major mergers and acquisitions in the last two decades in India. This chapter has also looked into the factors which motivates mergers and acquisitions. It had also given an outlook on the effects it has on the foreign direct investment and the economic benefits of the country.



3 METHODOLOGY

The success of any research depends upon a well structured methodology. It is vital for any researcher to formulate a research friendly methodology that can provide maximum information at a given time constraint.

This dissertation is about the growing trend of mergers and acquisitions activity in India's corporate scene. The subject of the dissertation is spurred from the research done for my own understanding of the topic. My own interest in this domain was influenced by "economic growth of India "and "mergers and acquisitions". The findings in the thesis are very much representing an inductive research.

Inductive reasoning/research is known as "bottom up approach". Where result and hypothesis is based on specific observations to broader theories and generalizations. This suggests that the findings, hypothesis, observations and conclusion in the dissertation are based on the collected data. Since it would be impossible to conduct a survey or questionnaire based research on mergers and acquisitions in India .So, in order to understand the behaviour of Indian organizations and industries on mergers and acquisitions with respect to growth and market capitalization it is important to do a thorough study of already available data on M&A`s in India .The inductive approach means that the mergers and acquisitions trends and effects on Indian economy could be approached freely, and allowed to be explore the data fully.

The success of any research depends upon a well structured methodology. It is vital for any researcher to formulate a research friendly methodology that can provide maximum information at a given time constraint.

In this dissertation the researcher has chosen three main industries in India which contributes the largest proportion of outbound deals occurred in the last two to three years namely the software and IT industry, the pharmaceutical industry and the steel industry. All these industries play a vital role in the growth of the Indian economy to enter and compete in the global market. The researcher also wishes to take into account a company from each sector and look into its growth and performance. The companies are Ranbaxy acquisition of Romanian company Terapia in pharmaceutical, Tata acquiring UK company Corus in the steel industry and Wipro acquisition of American company cMango.

The research based analysis and study of mergers and acquisitions is based on collection of data, organization of data and integration of the information on mergers and acquisitions. Data collection is the most pivotal step in the success factor of the research because it leads to more legitimate and credible results. The research study is based on several mergers and acquisitions in number of industries whether they were both successful and unsuccessful in the last decade or so. In the research analysis the focus is more on the recent decade's activities of mergers and acquisitions in India.

The social sciences are methodologically getting very diverse because of the use of qualitative, quantitative and mixed methods approaches. Quantitative methods include hypothesis testing, observational studies, re sampling, regression analysis and high dimensional level analysis and others. Qualitative methods include the phenomenology, case studies, grounded theories and ethnography and others. After the analysis of the existing statistics and literature and also the analysis of the leading economists the the approach is both Quantitative and Qualitative. As it is based on secondary search, all the selected data is from rigorous analysis of articles from journals, books, internet and magazines. Source (www.scribd.com)

As the research is based on both Quantitative and Qualitative .so, the theoretical evidences and empirical data are mainly from the research papers, articles and by the highly respective economic research, thesis and journals.


3.1 Sources of Information:

The identification of source of information is as important as the topic selection for the research as it is very significant to select and tap channels which allow relevant and continuous information inflow for the dissertation to be robust. The researcher relies on secondary and tertiary data for developing this research. The researcher relies on secondary information in data collection for the dissertation. The secondary source of information for this particular research is the many articles which tell about the recent multi billion dollar acquisitions made by Indian multinationals worldwide. These articles serve as the backbone for this particular research.

Tertiary information implies a variety of information for the sample selected such as scope, present scenario, strengths statistics etc published in journal articles, books, newspapers, magazines and websites. The tertiary source for this dissertation would be the company profiles, annual reports, acquisition deal reports and various websites which provide relevant information and helpful information for the dissertation. The researcher planned to conduct qualitative and quantitative analysis for the dissertation. The researcher intended to do qualitative and quantitative analysis as it would help increase the reliability of the data.


3.2 Summary:

This chapter has outlined the manner in which the proposed dissertation is researched, analyzed and conceptually tested. It has also outlined the techniques and methodologies used to extract the required data. It was of key importance to understand and build up the hypothesis on the mergers and acquisitions in India while not being in India through secondary research by going through books, journals, articles, research papers and internet etc.



4 FINDINGS

India has seen unprecedented growth in its economy in the last decade. It would be very useful to see the major mergers and acquisitions activity in India in recent years.

1. Tata Steel -Corus: $12.2 billion:

In January 2007, Tata Steel acquired a 100% stake in the Corus Group at value US$12.2 billion. The deal is still the largest takeover of a foreign firm by an Indian firm.

2. Vodafone-Hutchison Essar: $11.1 billion

In February 2007, the second largest M&A deal involving an Indian firm when Vodafone bought majority of the stake in Hutchison Essar for US$11.1 billion.

3. Hindalco-Novelis: $6 billion

Also in February 2007, Hindalco purchased Novelis for US$ 6 billion.Hence the third largest M&A deal.

4. Ranbaxy-Daiichi Sankyo: $4.5 billion:

In June 2008, the largest M&A deal struck in the Indian pharmaceutical industry when daiichi sankyo took 50% control of Ranbaxy .It is still the 4th largest M&A deal in India.

5. ONGC-Imperial Energy: $2.8 billion

In January 2009, ONGC an oil and gas firm took control of Imperial energy for US$2.8 billion. It is the fifth largest M&A deal in India.

6. NTT DoCoMo-Tata Tele: $2.7 billion

In November 2008, Ntt docomo a Japanese firm took over a stake in Tata tele for US$ 2.7 billion. It is the sixth largest M&A deal in India.

7. HDFC Bank-Centurion Bank of Punjab: $2.4 billion

In February 2008, HDFC bank took over centurion bank of Punjab for US$ 2.4 billion. It is the seventh largest M&A deal in India.

8. Tata Motors-Jaguar Land Rover: $2.3 billion

In March 2008, Tata motors took control of Jaguars land rover for US$2.3billion.It is the eighth largest M&A deal in India.

9. Sterlite-Asarco: $1.8 billion

In March 2008, Sterlite is the Indian branch of a London based firm acquired Asarco for US$ 1.8 billion. It is the ninth largest M&A deal.

10. Suzlon-RePower: $1.7 billion

In May 2007, wind Power Company Suzlon took control of German company RePower for US$ 1.7 billion.It is the tenth largest M&A deal in India. Source.
(www.business.rediff.com)


4.2 Mergers and Acquisitions in different sectors in India:

High volumes of mergers and acquisitions in India have occurred in finance sector, telecommunication, FMCG sector, construction materials, automobile and metals. In the year 2005 financial sector topped the list with 20% of total value of mergers and acquisitions in India. Telecommunication sector valued at 16%, while FMCG sector and construction materials valued at 13% and 10% respectively.

In the banking sector the main mergers and acquisitions in India in recent years include the merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was nearly worth US$ 174.6 million (Rs. 7.6 billion in Indian currency). Another important merger was occurred between Centurion Bank and Bank of Punjab nearly US$82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the emergence of the Centurion Bank of Punjab with 235 branches in India.

In the telecom sector, an increase of stakes by SingTel from 26.96 % to 32.8 % in Bharti Telecom was worth US$252 million (Rs. 10.9 billion in Indian currency). In the Foods and FMCG sector a controlling stake of Shaw Wallace and Company was acquired by United Breweries Group owned by Vijay Mallya. This deal was worth US$371.6 million (Rs. 16.2 billion in Indian currency). Another important one in this sector, worth US$48.2 million (Rs 2.1 billion in Indian currency) was the acquisition of 90% stake in Williamson Tea Assam by McLeod Russell India In construction materials 67 % stake in Ambuja Cement India Ltd was acquired by Holcim, a Swiss company for US$634.9 million (Rs 27.3 billion in Indian currency).Source(finance.mapsofworld.com)


4.3Major Mergers and Acquisitions in India:

In Recent times Indian firms have executed some very important mergers and acquisitions. Some of those follow: Hindalco`s takeover of Novelis of Canada. The deal was nearly worth US$5,982 million. Tata Steel`s acquisition of Corus Group plc was worth US$12,000 million. Dr. Reddy's Labs acquisition of Betapharm was worth of US$597 million. Ranbaxy Labs acquisition of Terapia SA amounted to nearly US$324 million. Suzlon Energy`s acquisition of Hansen Group worth of nearly US$565 million. Daewoo Electronics acquisition of Corp. by Videocon was worth US$729 million. HPCL`s acquisition of Kenya Petroleum Refinery Ltd amounted to US$500 million. VSNL`s acquisition of Teleglobe was worth US$239 million. In 2007 the total number of mergers and acquisitions deals in India was 287 from the month of January to May. It has involved staggering ammount of US $47.37 billion. Only 102 deals were cross border out of 287 deals with a total value amounted to nearly US$ 28.19 billion. Source (http://www.economywatch.com)


4.4 The IT industry in India:

The main requirements for a company while outsourcing its business process is to be assure of quality and low wages. There is a growing trend in outsourcing worldwide. India is focusing continuously to deepen its roots in the outsourcing market. This is the reason why India has successfully established and attracted itself as being the world largest outsourcing destination in software. This success has enabled the government of India to take the necessary steps for ensuring a continuous growth of outsourcing company in India. The Indian information technology has been implemental in running the country`s economy onto the path of rapid growth.

Research study by Nasscom-Deloitte,

"The Information Technology Industry has contributed 5.2 percent in india`s GDP in 2007 as compare to only 1.2 percent in 1998. "

By the end of fiscal year 2008, the IT and BPO industries are ready to clock revenues worth US$ 64 billion resulting in 33 percent growth exports expected to cross US$ 40 billion and the domestic market estimated to clock over US$ 23 billion. Indian Information technology sector services market is estimated to remain the fastest growing in the Asia with a CAGR of nearly 18.6 per cent (Springboard Research). Custom Application Development and Maintenance (CADM), System Integration, Information technology Consulting, Application Management services, Infrastructure Management Services, Software testing, Service-oriented architecture and Web development services are services that primarily dominate and help in India's Information technology growth. Software exports are expected to register a 33 percent growth in the current financial year with the export figures expected to reach US $45 billion. India's IT exports have come quite far starting from a few million dollars beginning of 1990s.The government expects that by the year 2011 the exports turnover to touch US $ 80 billion and to be growing at an annual rate of 330 percent per annum.


4.5 Outsourcing:

Researches show that India as an unquestioned leader in the outsourcing space in the year 2008. Majority of UK businesses offshore or all parts of their IT functions in India and plan to continue with this strategy as India emerged the favorite outsourcing destination for businesses in UK in terms of satisfaction. (The Outsourcing Service Provider Performance Study 2007), undertaken by sourcing advisory firm Equa Terra.

According to another study conducted by Nasscom, it was reported that India has overthrown China as a contender for offshore services and tops the list of 30 countries on criteria's such as language, government support, huge labor pool, infrastructure system, educational system, cost, political environment and economic environment, cultural compatibility, global maturity and legal maturity,data and intellectual property security and privacy. It also reported that the Indian outsourcing sector logged a 35 % annual growth over the last 5 years with annual revenues touching US $11 billion with most of it coming from exports. It has been found in a survey that 29 Indian based companies were listed among the best 100 IT service providers .This survey was performed to assist business heads of major outsourcers find tech partners who are reliable and innovative.


4.6 Multinationals in India:

The IT sector has helped India generate revenues for both the domestic and global market and has been a promising sector. With the IT boom, India IT potential has attracted multinational companies to invest in it and offers very high returns for multinationals investing in it.

Due to the expansion of small and medium enterprise (SMEs) and the purchasing power, there is a promise for global information technology giants who will achieve a 100 percent growth in their small and medium business in the Indian market. Some examples of such companies are Europe's biggest computer services and consulting company, Capgemini, which is gradually moving it's in internal support service to India. Intel which is the largest chip maker in the world will inject around US$1 billion over the next three years in India with partnerships with Indian and foreign hardware organizations to make light weight personal computers. Yahoo! Inc and Tata Sons subsidiary firm Computational Research Laboratories (CRL) have made a joint agreement to make available-EKA, a supercomputer (the fourth fastest) in the world for cloud computing research in India. Dell India has seen increasing 80 per cent sales last year with revenues to the total value of US$ 700 million. World's leader in chip designer firm ARM is expanding its India design centre to make it the biggest outside Britain.


4.7 The pharmaceutical and biotechnology industry:

Presently the Indian pharmaceutical sector is the largest in the developing countries. The current status of growth of the Indian pharmaceutical sector is expected to grow at US$ 25 billion in 2010. Compared to any other industry sectors and multinational counterparts, the Indian pharmaceutical companies reign supreme in India. There is a rise in the profit margins and a recent trend in mergers and acquisitions by Indian pharmaceutical companies is to give an up trend to the growth of economy. The industry is highly fragmented as the market is influenced by a branded generic market with more than 20000 domestic manufacturers of end use pharmaceuticals. . It has been expected that the domestic retail market would cross the US $ 10 billion by 2010 and will worth an estimated US$ 12-13 billion by 2012. The country's pharmaceutical sector is a US $7.3 billion industry.

The pharmaceutical sector offers a great depth of growth opportunities in India. It is very vibrant in nature and the change is very optimistic. The sporadic and huge range of opportunities in the complex field of drug manufacturing has made the Indian Pharmaceutical Industry the most attractive .As this is a boundary less by the natural support it has to consolidate .contract research and clinical trials taking wing, the Indian pharmaceutical industry is witnessing staggering growth. The Indian pharmaceutical industry produces 20-24 percent of the world's generic drugs and is ranked 4th globally in terms of volume and 13th in terms of value. India is one among the top five pharmaceutical ingredients (API) producers with a share of 6.5 per cent. Nearly all of the demand for formulations and nearly 70 per cent of the demand for bulk drugs are being supplied by the Indian pharmaceutical companies.


4.8Exports:

India ranks 17th in the world with respect to the value of export. Exports constitute nearly 40 percent of the production along with formulations contributing 55 per cent and bulk drugs 45 percent. The industry comprises of large medium and small-scale operators. 90 per cent of the domestic market is accounted for by around 300 companies and the rest by around 9000 units of smaller companies. The Indian pharmaceutical industry is self reliant which displayed by the production of 70 per cent of bulk drugs and almost the entire requirement of formulations within the country. The cost of production and the cost of research and development is low. And there is the availability of innovative scientific manpower and strong national laboratories. India`s exports in the pharmaceutical sector is amounted at US$ 6.68 billion in 2007-08 as compare to US$ 5.73 billion in 2006-07, recording a growth rate of 16 per cent (Pharmaceutical Export Promotion Council (Pharmexcil)). In the years 2006-07 the export growth rate has been 18 percent and 23 and 17 percent in the years 2005-06 and 2004-05 respectively.

Indian pharmaceutical companies have the availability of skilled manpower and abundant investment in research facilities which allows them to have a place in the global generic market. In a report by global pharmaceutical market intelligence company says that the Indian generic manufacturers will grow more than US$70 million as drugs worth US $ 20 billion in annual sales. Indian generic manufactures are positioning themselves to offer generic versions of patent protected drugs worth US $ 80 billion to go off patent by 2012. There is a shift globally on the use of generics where the governments globally are under immense pressure to slash their budgets on healthcare. Consequently, the generics industry in India is gradually making its foray into Japan, South Africa, Europe and the Commonwealth after capturing the US markets


4.9 Contract research and manufacturing services (CRAMS):

With India increasingly being viewed as global hub for Contract research and manufacturing services (CRAMS), it has become a promising medium for the Indian pharmaceutical industry. Over 8 percent of the total Indian pharmaceutical business has been contributed by CRAMS over the last 5 years. As India offers global pharmaceutical companies both quality and cost advantage, developed companies as expected to propel the CRAMS industry to grow at a CAGR of nearly 32 percent from 2006 to 2013.

Indian companies are playing an important role in early drug discovery processes due to their substantial experience in the field of generic drugs with India becoming an established venue for chemistry and drug discovery developments than China. Contract research--including both drug discovery research and clinical research--has been growing at a phenomenal rate. 65 per cent of this market is represented by clinical trials and the remaining 35 per cent by new drug discovery. It is reported that the outsourced contract research in India would reach US $ 2 billion and the global clinical trial outsourcing to India in the pharmaceutical industry would be worth US $1.23 billion by 2010. Contract research organisations (CROs) such as Novartis, Johnson & Johnson, Pliva, Astra Zeneca, Bristol-Myers Squibb and GlaxoSmithKline are some of the 15 prominent companies that are now operating in the country.

India has the largest number of US Food and Drug Administration (US FDA)-approved plants outside the US, with over 100 facilities. Small and medium scale pharmaceutical companies are setting up new and upgraded high-quality manufacturing plants to take part in this growing segment. It has been estimated by the Boston Consulting Group that the contract manufacturing market for global companies in India would touch US $900 million by 2010.


4.10 Growth:

India has the distinction of producing high quality generic medicines that are sold around the world and is ready to be one of the fastest growing pharmaceutical industry in the world. It has been projected by a Mckinsey study that by the year 2010 the Indian pharmaceutical industry is expected to reach US $ 25 billion while the domestic market is likely to more than triple by 2015 to US$ 20 billion from its current US billion making it one of the leading pharmaceutical market in the coming decade. Some of the factors which gave rise to the growth of the pharmaceutical industry in India are

* A huge patient base

* Increasing incomes and improving healthcare infrastructure

* An increase in lifestyle-related diseases

* Penetration of health insurance

* Adoption of patented products

* Patent expiries and aging population in the US, Europe, and Japan

These factors have thus encouraged a number of multinational companies to enter the Indian pharmaceutical market. There are as many as 15- 20 pharmaceutical companies in the world who have a presence in India which in fact attracts large foreign direct investment.


4.11 Going Global:

The Indian pharmaceutical industry has globally established its presence by showing a robust growth in terms of infrastructure development, technology base creation and a wide range of production with a determination to flourish in the rapidly changing environment. Over the last month, Indian drug firms acquired six overseas companies, including the US$ 255 million acquisition of US-based Draxis Health Inc by Jubilant Organosys. Due to pricing pressures, The Indian Pharmaceutical industry has increased its competitive intensity is striving consistently to innovate.

* Dr Reddy's Laboratories acquired three companies in Europe and the US.

* Foreign medical equipments makers have entered to float Indian subsidiaries because of tremendous growth in this sector. 30 of the makers have received import clearances in 2007.

* Harvard Medical International and Cleveland Clinic, two of the leading healthcare providers have entered the country through joint ventures.

India is an interesting geography for several global drug majors who are attracted by the huge talent pool, scientific skills and cheap labour that has enabled Indian companies manufacture drugs at about a third of the cost in the West.


4.12 Biotech Industry in India:

The Indian biotech industry which accounts for 2% of the global biotech market has the potential to develop as a key player generating revenues worth US$ 5 billion. A survey conducted by Ernst and Young ranks India 3rd in the Asia Pacific region based on the number of Biotech companies in the city and regards India as one of the emerging biotech tech leaders. The domestic industry is now a US $3 billion sector with a 30 percent growth in 2007-2008. It is estimated that this sector will also grow 140 million square feet by 2010 thus creating employment by its products and its services.

The biotech industry in India mainly consists of five broad divisions which are

* Biopharma

* Agri-biotech

* Bioinformatics

* Bioindustrial

* Bioservices

Over the last three years with over 340 companies, the Indian biotech sector with its 'low cost, high value' proposition has been growing at 35 to 40 percent annually and has been witnessing heightened activity having attracted as many as 200 multinationals.

With the Genome Valley Project, Hyderabad has been the firm anchor for India's biotech industry with it attracting foreign exchange worth US $1.24 billon from pharmaceuticals biotech chemicals and allied chemical companies. Similarly, Bangalore has been the at helm of the country's biotech developments with it attracting the maximum share estimated to be worth US $250 million and an increased investment of US $ 580 million


4.13 The Indian advantage:

Dr Clive James, who is the founder and president of the International Service for the Acquisition of Agri-Biotech (ISAAA) has projected the period 2006-2015 as a decade for Asia in the field of biotechnology. India having a strong base for pharmaceutical research and IT services is driving the off-shoring of bioinformatics to India. India also having a huge talent pool of trained, skilled and well-educated English speaking human capital, regulatory experts and numerous scientists are an added advantage.

India is already the world's largest vaccine producer as well as the largest cultivator of Bt cotton. The Indian bioinformatics market is poised to double by 2010 - from US$ 32 million to US$ 62 million by 2010 - as per a report by research firm ValueNotes Outsourcing Practice.A research conducted by Rabo India Finance Ltd. has predicted that India would become a major producer of transgenic rice and several genetically modified (GM) or engineered vegetables by 2010.India has ranked 1st in terms of growth in the transgenic crops sector where it registered over 200 per cent compared to the global average of 13 per cent. Source (www ibef.org)


4.14 Agri-Biotech Industry in India: xAgri-Biotech Industry in India:

This sector is seen as one of the fastest growing amongst all the biotech industries in India with a 54.85 per cent growth rate and sales of US$ 230.61 million, contributing a 10.84 per cent share to the biotech market value. Research has shown that the agricultural biotech sector in holds high potential for development and could emerge as the leading grower of transgenic rice and several genetically engineered vegetables by the year 2010. This industry is also backed by the government through streamlined regulatory framework policies and fiscal benefits which led to the US$ 8 million investment in the functional genomics project.

The major driving force in the rapid growth of this sector is the Bt cotton companies and the infrastructure developments. India is the second largest producer of cotton in the world after the US. Production was increased from 15.8 million bales in 2001-02 to 31 million bales in 2007-08 with Bt cotton being the key contributor. The Bt cotton acreage in the country has grown manifold within six years accounting for about 70 per cent of the total area under cotton cultivation in 2007-08. The Indian food companies have also started to acquire the Agri-biotech companies as part of their strategy to strengthen their food business.


4.15 Mergers and acquisitions:

In recent years there has been a number of mergers and acquisition in the biotech industry.

* Biotech major Biocon has firmly pitched itself in the European market by snapping up 70 per cent stake in German pharma player AxiCorp in a deal worth about US$ 42.85 million, enabling it to market injectible insulin, generics, biosimilars and biologics in the region.

* Relaince Life Sciences acquired 74 per cent majority stake in the UK-based Gen Medix.

* Wockhardt has acquired Pinewood Laboratories a branded generic pharmaceutical company in Ireland estimated to be worth US$ 150 million.

* ITC acquired Australian agri-biotech company Technico which has global operations. Source(www.ibef.org)


4.16 Government Initiatives:

India is one among the first few developing countries that have recognised the importance of biotechnology as a tool for advancing growth in the agriculture and health sectors. In 1986, the department of biotechnology (DBT) was established by the government to identify priority areas and evolve a long-term plan for the development of biotechnology. The strong support and commitment of the Indian government has been an important factor in the development of the biotechnology sector.

The following are some of the initiatives taken by the government to improve this sector-

* The government has opened the doors for foreign investment by allowing firms to in invest in drugs manufacturing except recombinant DNA products and cell targeted therapies. It has also planned a bioinformatics and a genomics centre at Tidel Park in Chennai to explore the Indian genetic pool, leverage on the pool of Indian bioinformatics scientists and low cost software skills, facilitate research and enable entrepreneurs to commercialize their findings. The Karnataka government, in particular, is partnering Australia's Deakin University to start post graduate and doctoral programmers for high end scholars and biotech scientists. DBT provides a single window processing mechanism for all mega biotechnology projects involving foreign direct investment (FDI) of US$ 22 million or more under the Foreign Investment Implementation Authority (FIIA) with its Fast Track Committee (FTC). Source (www.ibef.org)


4.17 The Indian edge:

The following are the factors that are responsible for India's competitive edge in the biotechnology sector globally. These factors have not only enabled some of the Indian companies in innovating but have also helped in making healthcare more available and affordable to people who need them the most.

* India has the most diverse species of flora and fauna which is an added advantage for biotech companies to carry on their research and drug discovery effectively

* A large and strong pool of qualified scientists and engineers

* Strong and committed government support in the form of incentives given at both state and central levels.

* Large base of trained English speaking and skilled individuals.

* Increasing acceptance of Indian Clinical data by USFDA/EMEA

* Existing and upcoming research facilities and institutional networks

India has come a long way in this sector and it is not too far when India would become the global hub for cure to many deadly diseases such as cardiac, diabetes, neurology and cancer. The Reliance Life Science president and CEO K V Subramaniam stated that, 'India has the opportunity to be a global force in biotech and stem cell research can be an important constituent of this aspect.


4.18 The Steel industry:

The Indian steel industry is the 5th largest producer of steel and is riding high on demand and the insurgent economy. The steel industry entered in to a new era in the development stage from 2005-2006, with an average growth of 12 percent per annum in steel output. Due to the increase in production of steel in India, 50.71 million tons of crude steel and 52.9 million tons of steel is produced. By the year 2011-2012, India will produce 124 million tones of steel, which will exceed the requirement of India which is 110 million tons. The production of steel was estimated at 49.67 million tons in 2007-2008 against 46.75 million ton in the previous two years, giving a growth rate of 6.2 per cent. The demand and supply of steel will always be rising, as a result the government is trying to increase production from present 53million tons to 124 million tons by the year 2011 and 200 million ton by the year 2020. The consumption of steel has grown by 12.5 percent during the last three years. A study done by Credit Suisse Group states that India's steel consumption will grow by 16 percent till 2012, fuelled by demand for construction projects worth US$1 trillion. Steel consumption has grown an average of 11.36 per cent from 46.14 million in 2006-2007 against 41.43 million ton in 2005-2006. Steel producers have been reporting encouraging results with the surge in demand level. During the second quarter of 2007-2008, the top six steel production companies have reported a year on year growth rate of 11.4 per cent, 12.7 percent and 9.7 percent in net sales, operating profit and net profit. The world's 6th largest steel maker, Tata steel, aims to double its return on investment by 2012.

As the production of steel in India is growing, there is also an increase in exports by 6.26 per cent in 2006-2007 over 2005-2006 to touch 4.75 million ton. Exports have increased in the first six months of the financial year of 2007, growing by 7.4 percent to 2.6 million ton from 2.42 million in 2006. The government aims to first meet the ends of the domestic market as a result the Indian steel ministry has proposed an ad valorem export duty on chrome ore (Union Budget 2008), fearing a fast depletion due to the phenomenal rise in exports.

The Indian steel industry receives huge investments from domestic as well as foreign investments as it is the 5th largest production of steel in the world, has 13 billion tons of iron ore deposits and an increasing consumer market, a majority of steel companies have companies have shown interest in major investment proposals. For example China's largest investment in India with more than US$1.9 billion over 5-10 years is scheduled to come up in Karnataka India with the setting up of Xindia steels. An additional investment of US$69.97 billion will be invested in to the steel industry by the year 2011-2012 and US$ 220.20 billion by 2019-2020. The industry announced capacity expansion of nearly 31 million tons during the last quarter of 2007-2008 to meet the increasing demand. As a result, Indian steel firms plan to invest US$20.96 billion in the following months and increase capacity by 31 million tons to meet rising demand. Also ArcelorMittal, the world's largest steel maker and Tata steel worlds fifth largest, is very optimistic about investing in India and is committed to invest nearly US$25 billion and US$18.79 billion respectively. Tata steel will spend on three of its Greenfield projects which will take production to 35 million tons from 7 million tons. Some of the investments are used at modernisation and upgrading of existing steel plants while others are directed towards setting up new plants or expand existing capacities. The next few are a time to increase production capacity from the biggest players like ArcelorMittal and Tata Steel, to mid level players like Bushan Steel and Welspun. Arcelor Mittal, the world's largest steelmaker, plans to set up two greenfield steel projects in India each with a capacity of 12 million ton per annum (MTPA). Tata Steel, the world's fifth largest steel maker, plans to double its capacity by 2015, by adding another 35 MT capacity.

India is spreading their capacity and presence in the steel industry world wide. With the change in regulatory environment has enables Indian companies to stretch out to foreign shores and is getting worldwide attention. Some examples of Indian companies acquiring foreign companies are Tata Steel acquiring the Anglo-Dutch steelmaker Corus to become the world's 5th largest steelmaker, adding 19 MT of steel-making capacity. Essar Global acquiring Canada's Algoma Steel for US$ 1.63 billion and US-based Minnesota Steel. Naveen Jindal-promoted Jindal Steel & Power Ltd (JSPL) has bagged the US$ 2.1 billion contract for developing one of the world's largest iron ore deposits, El Mutun. The project includes a 2 MT steel plant in Bolivia. India's Steel Strips Wheels Ltd. has received an order from French car maker Renault SA worth US$ 27.56 million to supply around 1 million steel wheel rims for over 5 years. (Source of examples- www.ibef.org)

Source-(http://www.economywatch.com/business-and-economy/steel-industry.html)

The Indian steel industry will face a boom in the next coming years as the government plans to invest in over US$350 billion for industries related to infrastructure and construction.


5 ANALYSIS

Indian company's acquisitions of foreign companies represent the changing nature of Indian organizations. The trend of Indian companies investing in foreign companies continues to rise and these companies will grow and expand. Now the question arises whether Indian companies acquisitions of foreign companies is a matter of pride, or strategy to enhance their products, technology and intellectual portfolio. Let us take for example Tata's acquisition of UK based company Corus. Tata has much experience in the acquisition field. Tata's acquisition of UK Steel company Corus for US$13.6 billion. Tata was rank 50 in the steel industry but is now in the 5th place of steel production worldwide.

World's top steel makers by volume
( after acquisition of Corus)

Source: Iron and Steel Statistics Bureau


5.1 Analysis 1:

Even though CORUS was a larger company than TATA its revenue was low. The company was valued less than TATA at the time when the deal negotiation started,. Tata group made more revenue than Corus steel company. There were a number of companies which were interested in acquiring Corus steel. Some of the companies were a Brazilian steel maker Companhia Siderurgica Nacional's (CSN) . At the end it was Tata who was the highest bidder. Although Tata won the bid, it was an expensive one. The basic reason why Tata was interested in acquiring Corus was not seeing the revenue size, but rather its market value. Even Corus supported the Tata acquisition saying that this deal expected synergies between the two entities. This was an expensive bid for Tata because the initial bid was 450 pence a share, but it was raised to 680 pence per share in order to clinch the deal. This price was even higher than that in other recent acquisitions in the steel industry. Even higher than the price offered by Mittal the world's largest steel company in a highly controversial much larger (US $32 billion) take over of the better performing Arcelor. Tata financed this deal through loans from major banks. This deal was paid for in cash which makes it more expensive, resulting cash outflow from Tata steel in amount of 1.84 billion. Management officials of Tata says that even though the deal looks expensive it creates a unique opportunity to enter into the international market and would increase the companies production capacity from 8.7 million tons to almost 28 million tons a year at half of the cost of building new plants.

Strengths of this deal were that Tata has low cost production methods while Corus has sophisticated steel making technology. This is a strategy that would enable them to serve various markets with better pricing power. The Tata-Corus deal may also be the reason that has contributed to the recent acquisition of Jaguar and Land Rover for US $2.3 billion and this placing Tata in a better position to have a strong presence in the European market in both steel and automobile industry. This also enables them in making low cost and better quality steel in the future.


5.2 Analysis 2:

In the pharmaceutical sector Dr Reddy's Laboratories acquired German generic drug maker betapharm for 480 million Euros in 2006. This is the biggest acquisition made by an Indian pharmaceutical company in Europe. The transaction was completed using a combination of the company's internal cash reserves and committed credit facilities. Dr Reddy Laboratories has made many successful acquisitions in the past years Some of the companies they acquired are a UK bases BMS laboratories ,AUVERIGNE discovery technologies for Us $12 million .The offer acquired ROCH'S API's business in Mexico for a 59 million deal.

The acquisition of betapharm by Dr Reddy's laboratories is seen as a strategic move towards becoming a mid-sized global pharmaceutical company with strong presence in the pharmaceutical market. This strategic investment will generate substantial opportunities for both the companies resulting in a long term value

This acquisition gave Dr Reddy laboratories an access to the German generic drug market which is the second largest generic drug market in the world and also helps Dr Reddy laboratories to take an advantage of the strong marketing and distribution channels of betapharm. Betapharm can utilize Dr Reddy laboratories low cost manufacturing and product development infrastructure. But this acquisition also made some problems for Dr. Reddy's Laboratories. It resulted in the depletion of cash reserves and made the company incur large debt. Also Dr Reddy's lab domestic market in India was not large enough to generate profit to compensate the decline of revenue sales in the US generic market. The company German subsidiary betapharm is continuing to make losses the availability of raw materials form Mexico has declined the turn over and profit of the company. The company net profit droped 68 percent in the fourth quarter ended March 2008 at Rs 102 Crore. As a strategy to come out of this loss, the company shifted its product manufacturing to India after getting considerable independence from its contracted raw material manufacturing company, Salutus.


5.3 Analysis

Wipro's acquisition of CMANGO is another acquisition strategy made by the Indian IT sector for US $20 million in cash. CMANGO is a US based technology infrastructure consulting company. CMANGO's revenue was US $ 30 million, offering business service management (BSM) solutions. Wipro has made many successful acquisitions before , and this acquisition is in line with Wipro's strategy to invest in the areas were it can demonstrate establish leader ship through differentiated service levels and domain knowledge. CMANGO creates business solution for customers using the right combination of people, process and technology. The management comments that the partnership brings a specialsed expertise of CMANGO in BSM solution and Wipro's wide variety of service and extended global reach. This combination can also bring expansion of the market and provide superior solution. This acquisition has helped Wipro to enhance its capabilities in the business service management (BSM) space where the Indian companies have a small presence.



6 CONCLUSIONS

The idea behind mergers and acquisitions is the amalgamation of two firms brings more profitability than an individual firm and that the value of shareholder is also higher in the duet. Mergers and acquisition is became an important tool for the firms for growth, profitability and market share. Even though many economist does resist the idea in a sense that their is more to takeover i.e.in depth financial analysis while takeover may enhances the chances of successful takeover. Globalization has certainly omitted the trade barriers between the countries with more liberal trade borders than ever led to more opportunities for firms in inside and outside India. Increased mergers and acquisition activity in the market given firms to achieve economies of scale. Also gives opportunity to smaller firms to get investment from foreign firms in the attractive industries. Mergers and acquisition gives firms an opportunity to expand and increase their market share.

India has seen unprecedented growth lately and thus mergers and acquisition activity on the rise due to business consolidation by foreign firms' .It is ripe time for firms to take advantage of rapid Indian economic growth.

India has a promising future in acquisitions in all the sectors whether it is the IT industry, pharmaceutical or the steel. Indian companies are becoming important characteristics in the global business world. There has been a rapid expansion of outward foreign investment from India and a boom of acquisitions is the more significant development. But there is also a fact that there is too much money chasing few targets. India also faces certain challenges while acquisitions in the global markets. One thing is to have an effective post acquisition deal. The fact to notice is the cultural difference between the two organisations. This can have major problems in the two organisations. This can be one of the reason why acquisitions fail because management cannot bring harmony among multi cultural teams as the people factor is an important element in the multinational deals. It has been observed that since liberalisation came into effect, closed business environment of Indian companies has been changed in the competitive environment companies started undertaking acquisition to achieve growth and enhance competitive position in the market. It is predicted that this trend will continue in the future, due to the country's economic and political environment. Also the innovative packages for financing the overseas acquisitions increased the pace of Indian organisation entering the global markets. The future prospects of Indian organisation are to build higher value markets and develop the capability to deliver world class services and products so as to have a competitive advantage in the market. However, overseas acquisitions should be done with a strategic viewpoint and with an aim of having a new market presence, acquiring new technology, creating shareholder value to have a successful association throughout the business life.

In light of continuing to reform economically the expansion of trade and foreign investment and a vast amount of corporate restructuring is taking place in India. This allows the domestic corporations to be at an equal level to compete with global giants. As a copying strategy, organizations are going for corporate restructuring mainly in terms of mergers and acquisitions. In the post liberalization period that is after year 1991 M&A deals in India are also at the activity state, the motive behind such deals is to capitalize the potential synergy in the after deal time period. A concern of many stakeholders would be whether or not these firms will be able to capitalize the value of the mergers and acquisitions. It would seem referring back to this study that in the short term there is no significant change in the performance of M&As but looking at the long term effects this has on an organizations, there is certainly a change in the performance of M&As. This has also improved the performance of the outcome firms in over 50% of the merger and acquisition cases under study. There is also a need for enhancing the legal rules and regulations relating takeovers, much more clarity will enhances the corporate performance in understanding the transactions.



7 RECOMMENDATIONS

From the conclusion we understand India is on a path of acquisition spree. The fact is Indian companies and entrepreneurs are acquiring foreign companies as a strategy for achieving international recognition, acquiring technologies, growth as well as a means to enter into the global market arena. But there are challenges as well in relation to India's huge acquisitions. Some of the challenges are the culture difference between countries, lack of valuable information about the target company, its management styles, which is vital for the acquisition to take place. Companies while doing acquisitions always look for other means of finance through banks and other financial establishments. It is not a good practice for any organization to use their company's cash reserves for the transaction. For example Tata's acquisition of Corus steel was financed through external sources and Tata's internal cash reserves. Also in the analysis 2, where Dr. Reddy's laboratories acquired Betapharm, shows that, Dr. Reddy's laboratories incurred a decline in profits, which DRL is facing a challenge to raise money to cover the loss. It is important for companies to undertake a few key areas for their acquisition deal to be successful. To have rich, robust efficiently managed acquisition process.

It is important to consider a pre acquisition audit to see whether the target is healthy

Being precise and concise in decision making by top level management of the organization

It is also important to have some prior acquisition experience

Conduction external assessments would also help the organization to understand its flaws and plus points and the feedback would act as a precautionary step before enduring its next overseas acquisition. ( KPMG 2000)

India has a competitive global environment, the availability of managerial and entrepreneurial skills, positive and supportive economic and political environment and innovative and easy access to finance, it depends on the company how efficiently they consider and manage each of the activity and the post integration of the two entities result in a successful future.


7.1 Future Works:

The researcher opines that this research was limited in its scale by limited time from the point of view of the master's course. The researcher sees a lot of potential in continuing this sort of work on a larger scale in a bid to magnify the variation of results and be more specific by evaluating the same organizations analyzed in the dissertation. With the increased number of specimens the data would be much widespread and subjective evaluation of objectives and rational could be done on a much larger basis. The researcher was restricted in approach of analyzing in depth the share holder value of each of the company. The researcher tried to contact each of the companies personal to gain information regarding share holder value after acquisitions and also a critical analysis on the companies' performance. Since the companies acquisitions was done recently, thorough analysis of each of the companies performing in the future can provide a new dimension to the research there by possibly leading to an altogether new discoveries and conclusions.


Bibliography

Books

Terence E. Cooke, 1986, Mergers and Acquisitions, UK, Basil Blackwell Ltd

Sudarsanam, 1995, The Essence of Mergers and Acquisitions, UK, Prentice Hall Europe

Peter J Buckley/ Pervez N Ghauri, 2002, International Mergers and Acquisitions: a reader, UK, Thomson

Sudi Sudarsanam, 2003, Creating value form Mergers and Acquisitions the challenges, UK, Pearson Education limited

Prasanna. C, 6th edition, 2004, Financial management; Theory and practice, New Delhi, Tata Mcgraw Hill Publications

Charls W. L. Hill, 2005, 5th edition, International Business- competing in a global market place, Library of congress cataloguing- in-publication data

Articles

* The business India intelligence, Acquisitions of IT companies tempting targets; the economist intelligence ltd, September 2003

* The chartered insurance institute; India inc Goes Global , CII First international conference February 2007

* Accenture report; India goes global, how cross border acquisitions are powering growth, Accenture 2006

* India knowledge at Wharton; how Indian companies fund their overseas acquisitions; The Wharton school of the school of Pennsylvania, December 2006

* Deepak Nair, 2008, Internationalism of firms from India: Investments, Mergers and Acquisitions, Oxford development studies, 36:1,111-131

* Knowledge Wharton ; Indian Companies are on an acquisition spree, Knowlede@wharton, December 13 2006

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