MERGERS AND ACQUISITIONS
TABLE OF CONTENTS
|TITLE |PAGE NUMBER |
|ABSTRACT |3 |
|INTRODUCTION |4 |
|THE ACCOUNTING METHODS |7 |
| VALUATION |8 ...view middle of the document...
The use of this strategy by companies and its’ success, and the difference between the two (mergers and acquisitions) is discussed. Further, the various statutory regulations governing mergers and acquisitions with regards to India have been looked into - the Companies Act of 1956, The Competition Act, SEBI regulations.
The differences in mergers and acquisitions in India and some foreign countries have been reviewed. The performance of mergers and acquisitions has been analyzed using two mergers –The Arcelor-Mittal and the Daimler-Chrysler as examples. The plausible reasons for their success or failure have been studied.
Mergers and acquisitions are a method by which two or more companies are combined, to form a completely new company or where in one of the companies ceases to exist and becomes a part of the other company. The macroeconomic environment, which includes the growth in GDP, interest rates and monetary policies play a key role in designing the process of mergers or acquisitions between companies or organizations. The key principle behind buying a company is to enhance shareholder value. Two companies together are more valuable than two separate companies. Mergers and acquisitions are used as a business strategy for achieving economies of scale, to penetrate new markets, to combat competition. They are a financial tool that is used for enhancing long-term profitability by expanding business operations. They could be mergers with related companies or with companies which have a completely different product line. They have become increasingly popular due to opening up of the different economies, technological developments and the cut-throat competition in the business environment.
However, the first of its kind dates back to the 1890’s. The historical trends of mergers and acquisitions in certain countries have had ups and downs. The mergers occurred in bursts interspersed with relative inactivity forming waves of mergers. The mergers and acquisitions have evolved in five stages
The First Wave (1890 to 1904)
During this phase, mergers occurred between companies which enjoyed monopoly over their lines of production like railroads, electricity etc. These were mostly horizontal mergers that took place between heavy manufacturing industries. Many of the US corporate giants like General Electric, DuPont, and Eastman Kodak were formed during this phase. The mergers were with an intention of monopolizing the markets. Most of the mergers that took place during this phase ended in failure as they could not achieve the desired efficiency. The slowdown of the economy in 1903 followed by the stock market crash of 1904 added to it. The legal framework was not supportive either. The Supreme Court passed the mandate that the anticompetitive mergers could be halted using The Sherman Act had come into effect in 1890. But it could not do much to reduce the ferocity of the wave.
The Second Wave...