Reasons for mergers and acquisitions1. Growth 2. Synergy NAV = PVab – ( PVa + PVb ) – P – E 3. Managerial efficiency 4. Market entry 5. Diversification 6. Tax shields 7. Strategicity Some unstated reasons for acquisitions: 1. Megalomania 2. Spirit hubrisForms of business combinations1 . Consolidation: Result: a new company, for example Sandoz + Ciba Geigy = Novartis2. Merge: Result: Only one survives, i.e. HDFC BK + TIMES BK = HDFC3. Acquisitions: control over mgmt through a substantial part of its capital. For example, Credit Swiss Group controlled the management of First Boston through the acquisition of shares. Both remained alive.4. Asset Purchases: Acquisition of a division or assets of T i.e. Coca-Cola paid Rs 170Cr to Parle for its soft drinks brands like Thumps up, Limca, Gold Spot, etc. The acquisition process1. Acquisition research2. Approach to Targeta. Passive strategyb. Active strategy3. Assessment. Discounted cash flow methodb. Comparable companies method. Book value method Market value method4. Negotiation5. Due Diligence6. Financing for acquisitionsSales1. Opportunistic2. Forced3. Planned forms of business downsizing1. Split A new legal entity is created to take over the operations of an existing division. The shares of the new unit are distributed proportionately among existing shareholders.2. Split A new legal entity is created to take over the assets of an existing division. The parent company's shares are exchanged for the new company's shares. Therefore the shareholding of the new entity does not reflect the shareholding of the parent company.3. DemergerThe complete demerger of a company into two or more companies and the parent company ceases to exist.4. Equity CarveoutsConversion of an existing division or unit into a wholly owned subsidiary. Result in positive cash flow.5. TransfersPermanent sale of a part of the company to external parties. The firm receives purchase consideration in the form of cash or securities or both. The transfer process1. Develop a sales strategy. Negotiated sale Auction sale2. Evaluation3. Drafting of the offer memorandum. Executive Summaryb. Sales procedure c. In the background. Operations. Marketingf. Human resources. Financial4. Identify potential buyers5. Negotiation and closing of the dealCorporate restructuring1. Going public2. Go private3. Joint VentureKILLER BEESKiller bees are companies or individuals employed by a target company to fend off a takeover bid; these include (primary) investment bankers, accountants, lawyers, tax specialists, etc. They help by using various anti-takeover strategies, thus making the target company economically unattractive and the acquisition more expensive. POISON PILLS Derives from its original meaning as a literal poison pill carried by various spies throughout history, taken when discovered to eliminate the possibility of being interrogated for the enemy's advantage. Different types of defense have been called "poison pills" because they not only harm the bidder but also the target (or its shareholders).