“A STUDY ON ACQUISITION OF ADITYA BIRLA COMPANY AND COLUMBIAN CHEMICALS COMPANY.”
MASTER OF COMMERCE PART - I
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Project On : Aditya Birla Group acquire Columbian Chemicals Company
Aditya Birla Group (ABG) (Acquirer Company) Columbian Chemicals Company (CCC) (Target Company)
Introduction
(M&A) and corporate restructuring are a big part of the corporate finance world. Indian enterprises were subjected to strict control regime before 1990s. This has led to haphazard growth of Indian corporate enterprises during that period. The reforms process initiated by the Government since 1991, has influenced the functioning and governance of Indian enterprises which has resulted in adoption of different growth and expansion strategies by the corporate enterprises. In that process, mergers and acquisitions (M&As) have become a common phenomenon. M&As are not new in the Indian economy. In the past also, companies have used M&As to grow and now, Indian corporate enterprises are refocusing in the lines of core competence, market share, global competitiveness and consolidation. This process of refocusing has further been hastened by the arrival of foreign competitors. In this backdrop, Indian corporate enterprises have undertaken restructuring exercises primarily through M&As to create a formidable presence and expand in their core areas of interest.
Acquisitions
When a company takes over the control of another company through mutual agreement it is called acquisition. An acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another - there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile.
Acquisition may be occur in this form :
? Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business. ? In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. ? Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publiclylisted shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved.
Advantage of acquisition are :
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Speed: It provide ability to speedily acquire resources and competencies not held in house.It allows entry into new products and new markets. Risks and costs of new product development decrease.
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Market power: It builds market presence. Market share increases. Competition decrease. Excessive competition can be avoided by shut down of capacity. Diversification is aggrieved. Synergistic benefits are gained.
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Overcome entry barrier: It overcomes market entry barrier by acquiring an existing organization. The risk of competitive reaction decrease.
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Financial gain: Organization with low share value or low price earnings ratio can be acquired to take short term gains through assets stripping.
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Resources and competencies: Acquisition of resources and competencies not available in house can be a motive for merger and acquisition.
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Stakeholder expectations: Stakeholder may expect growth through acquisitions.
Disadvantage of acquisition are:
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Integration problems: The activities of new and old organizations may be difficult to integrate. Cultural fit can be problematic. Employees may resist it.
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High cost: The acquirer may pay high cost, especially in cases of hostile takeover bids. Value may not be added for the acquirer.
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Financial consequences: The returns from acquisitions may not be attractive. Executed cost saving may not materialize.
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Unrelated diversification: This may create problem of managing resources and competencies.
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Too much focus: Too much managerial focus on acquisitions can be detrimental to internal development.
Purpose of merger and acquisition
The company which proposes to acquire another company is knows differently in different modes of acquisition, the familiar ones are; „predator, offer or, corporate raider (for takeover bids), etc. The transferee company is also denoted as victim, offered, acquire or target etc. The purpose for an offer or company for acquiring another company shall be reflected in the corporate objective. It has to decide the specific objectives to be achieved through acquisition.
1. Procurement of supplies
a. To safeguard the source of supplies of raw material or intermediary product; b. To obtain economies of purchases in the form of discount, savings in transportation costs, overhead costs in buying department, etc. c. To share the benefits of suppliers economies by standardizing the materials.
2. Revamping production facilities
a. To achieve economies of scale by amalgamating production facilities through more intensive utilization of plan and resources; b. To standardize product specifications, improvement of quality of product, expanding market and aiming at consumers satisfaction through strengthening after sale services; c. To obtain improved production technology and knowhow from the offered company to reduce cost, improve quality and produce competitive products to retain and improve market share.
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Market expansion and strategy’s a. b. To eliminate competition and protect existing market; To obtain new market outlets in possession of the offered;
c. To obtain new product for diversification or substitution of existing products and to enhance the product range; d. Strengthening retail outlets and sale depots to rationalize distribution; e. To reduce advertising cost and improve public image of the offered company; f. Strategic control of patents and copyrights.
4. Financial strength
a. To improve liquidity and have direct access to cash resources; b. To dispose of surplus and outdated assets for cash out of combined enterprise; c. To enhance gearing capacity, borrow on better strength and greater assets backing; d. To avail of tax benefits; e. To improve EPS.
5. General gains
a. to improve its own image and attract superior managerial talents to manage its affairs; b. to offer better satisfaction to consumers or users of the product.
6. Own developmental plans
The purpose of acquisition is backed by the offer or company?s own development plans. A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operations having examined its own internal strength where it might not have any problem of taxation, accounting valuation, etc. but might feel resources constraints with limitation of funds and lack of skilled managerial personnel.
It has to aim at a suitable combination where it could have opportunities to supplement its funs by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its market position.
7. Strategic purpose
The Acquirer Company views the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategy. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.
8. Corporate friendliness
Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations.
9. Desired level of integration
Mergers and acquisitions are pursued to obtain the desired level of integration between the two combining business houses. Such integration could be operational or financial. This gives birth to conglomerate combinations. The purpose and the requirements of the offer or company go a long way in selecting a suitable partner for merger or acquisition in business combinations.
Reasons for merger or acquisition
There is not one single reason for a merger or takeover but a multitude of reasons cause mergers and acquisitions which are precisely discussed below: 1. Synergistic operating economies It is assumed that existing undertakings are operating at a level below optimum. But when two undertakings combine their resources and efforts they may with combined efforts produce better results than two separate undertakings because of savings in operating costs viz. combined sales offices, staff facilities, plants management, etc. which lower the operating costs. Thus, the resultant economies are known as synergistic operating economies. The worth of the combined undertaking should be greater than the sum of the worth of the two separate undertakings i.e. 2+2 = 5.Synergy means working together. 2. Diversification Mergers and acquisitions are motivated with the objective to diversify the activities so as to avoid putting all the eggs in one basket and obtain advantage of joining the resources for enhanced debt financing and better serviceability to shareholders. Such amalgamations result in creating conglomeratic undertakings. But critics hold that diversification caused by merger of companies does not benefit the shareholders as they can get better returns by having diversified portfolios by holding individual shares of these companies. 3. Taxation advantages Mergers take place to have benefits of tax laws and company having accumulated losses may merge with a profit earning company that will shield the income from taxation. Section 72A of Income Tax Act, 1961 provides this incentive for reverse mergers for the survival of sick.
4.Growth advantage Mergers and acquisitions are motivated with a view to sustain growth or to acquire growth. To develop new areas becomes costly, risky and difficult than to acquire a company in a growth sector even though the acquisition is on premium rather than investing in a new assets or new establishments. 5. Production capacity reduction To reduce capacity of production merger is sometimes used as a tool particularly during recessionary times as was in early 1980 in USA. The technique is used to nationalize traditional industries. 6. Managerial motivates Manager?s benefit in rank, status and perquisites as the enterprise grows and expands because their salaries, perquisites and status often increase with the size of the enterprise. The acquirer may motivate managerial support by assuring benefits of larger size of the company to the managerial staff. The resultant large company can offer better security for salary earners. 7. Acquisition of specific assets Surviving company may purchase only the assets of the other company in merger. Sometimes vertical mergers are done with the motive to secure source of raw material but acquirer may purchase the specific assets of the acquire rather than acquiring the whole undertaking with assets and liabilities.
The assets may also be acquired at a discount to obtain a going concern cheaply. There can be many situations to take over the assets of a company at discount viz. (i) The acquire may be in possession of valuable land and property shown at depreciated value/historical costs in books of account which underestimates the current replacement value. Thus, acquirer shall be benefited by acquiring the assets of the company and selling them off subsequently; (ii) to acquire non-profit making company, close down its loss making activities and sell off the profitable sector to make gains; (iii) The existing management is incapable of utilizing the assets, the acquirer might take over un geared company and increase its debt secured on acquirers assets. 8. Acquisition by management or leveraged buyouts The acquisition of a company can be had by the management personnel. It is known as management buyout. This practice is common in USA for over 25 years and quite in vogue in UK. Management may raise capital from the market or institutions to acquire the company on the strength of its assets, known as leveraged buyouts. 9. Other reasons There may be many other reasons motivating mergers in addition to the above ones viz. profit enhancement for the company, achieving efficiency, increasing market power, tax and accounting opportunities, growth as a goal and many speculative goals etc. depending upon the circumstances and prevailing conditions within the company and the economy of the country
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:
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Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.
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Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office
supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.
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Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.
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Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two. Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a later section of this tutorial.
Mergers and Acquisitions in India
M&As have played an important role in the transformation of the industrial sector of India since the Second World War period. The economic and political conditions during the Second World War and post–war periods (including several years after independence) gave rise to a spate of M&As. The inflationary situation during the wartime enabled many Indian businessmen to amass income by way of high profits and dividends and black money. There was a craze to acquire control over industrial units in spite of swollen prices of shares. The practice of cornering shares in the open market and trafficking of managing agency rights with a view to acquiring control over the management of established and reputed companies had come prominently to light. The net effect of these two practices, via of acquiring control over ownership of companies and of acquiring control over managing agencies, was that large number of concerns passed into the hands of prominent industrial houses of the country (Kothari, 1967). As it became clear that India would be gaining independence, British managing agency houses gradually liquidated their holdings at fabulous prices offered by Indian Business community. Besides, the transfer of managing agencies, there were a large number of cases of transfer of interests in individual industrial units from British to Indian hands. Further at that time, it used to be the fashion to obtain control of insurance companies for the purpose of utilizing their funds to acquire substantial holdings in other companies. The big industrialists also floated banks and investment companies for furtherance of the objective of acquiring control over established concerns.
The post-war period is regarded as an era of M&As. Large number of M&As occurred in industries like jute, cotton textiles, sugar, insurance, banking, electricity and tea plantation. It has been found that, although there were a large number of M&As in the early post independence period, the anti-big government policies and regulations of the 1960s and 1970s seriously deterred M&As. This does not, of course, mean that M&As were uncommon during the controlled regime. The deterrent was mostly to horizontal combinations which, result in concentration of economic power to the common detriment. However, there were many conglomerate combinations. In some cases, even the Government encouraged M&As; especially for sick units. Further, the formation of the Life Insurance Corporation and nationalization of the life insurance business in 1956 resulted in the takeover of 243 insurance companies. There was a similar development in the general insurance business. The national textiles corporation (NTC) took over a large number of sick textiles units (2004).
Recent Development in Mergers and Acquisitions
The functional importance of M&As is undergoing a sea change since liberalization in India. The MRTP Act and other legislations have been amended paving way for large business groups and foreign companies to resort to the M&A route for growth. Further The SEBI (Substantial Acquisition of Shares and Take over) Regulations, 1994 and 1997, have been notified. The decision of the Government to allow companies to buy back their shares through the promulgation of buy back ordinance, all these developments, have influenced the market for corporate control in India. M&As as a strategy employed by several corporate groups like R.P. Goenka, Vijay Mallya and Manu Chhabria for growth and expansion of the empire in India in the eighties. Some of the companies taken over by RPG group included Dunlop, Ceat, Philips Carbon Black, Gramaphone India. Even, the known and big industrial houses of India, like Reliance Group, Tata Group and Birla group have engaged in several big deals.
The Main Idea
One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, costefficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
From the point of Investor
It's hard for investors to know when a deal is worthwhile. The burden of proof should fall on the acquiring company. To find mergers that have a chance of success, investors should start by looking for some of these simple criteria:
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A reasonable purchase price - A premium of, say, 10% above the market price seems within the bounds of level-headedness. A premium of 50%, on the other hand, requires synergy of stellar proportions for the deal to make sense. Stay away from companies that participate in such contests.
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Cash transactions - Companies that pay in cash tend to be more careful when calculating bids and valuations come closer to target. When stock is used as the currency for acquisition, discipline can go by the wayside.
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Sensible appetite – An acquiring company should be targeting a company that is smaller and in businesses that the acquiring company knows intimately. Synergy is hard to create from companies in disparate business areas. Sadly, companies have a bad habit of biting off more than they can chew in mergers.
Mergers are awfully hard to get right, so investors should look for acquiring companies with a healthy grasp of reality.
Mergers and Acquisitions: Doing the Deal
Start with an Offer When the CEO and top managers of a company decide that they want to do a merger or acquisition, they start with a tender offer. The process typically begins with the acquiring company carefully and discreetly buying up shares in the target company, or building a position. Once the acquiring company starts to purchase shares in the open market, it is restricted to buying 5% of the total outstanding shares before it must file with the SEC. In the filing, the company must formally declare how many shares it owns and whether it intends to buy the company or keep the shares purely as an investment. Working with financial advisors and investment bankers, the acquiring company will arrive at an overall price that it's willing to pay for its target in cash, shares or both. The tender offer is then frequently advertised in the business press, stating the offer price and the deadline by which the shareholders in the target company must accept (or reject) it. The Target's Response Once the tender offer has been made, the target company can do one of several things:
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Accept the Terms of the Offer - If the target firm's top managers and shareholders are happy with the terms of the transaction, they will go ahead with the deal.
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Attempt to Negotiate - The tender offer price may not be high enough for the target company's shareholders to accept, or the specific terms of the deal may not be attractive. In a merger, there may be much at stake for the management of the target - their jobs, in particular. If they're not satisfied with the terms laid out in the tender offer, the target's
management may try to work out more agreeable terms that let them keep their jobs or, even better, send them off with a nice, big compensation package. Not surprisingly, highly sought-after target companies that are the object of several bidders will have greater latitude for negotiation. Furthermore, managers have more negotiating power if they can show that they are crucial to the merger's future success.
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Execute a Poison Pill or Some Other Hostile Takeover Defense – A poison pill scheme can be triggered by a target company when a hostile suitor acquires a predetermined percentage of company stock. To execute its defense, the target company grants all shareholders - except the acquiring company - options to buy additional stock at a dramatic discount. This dilutes the acquiring company's share and intercepts its control of the company.
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Find a White Knight - As an alternative, the target company's management may seek out a friendlier potential acquiring company, or white knight. If a white knight is found, it will offer an equal or higher price for the shares than the hostile bidder.
Mergers and acquisitions can face scrutiny from regulatory bodies. For example, if the two biggest long-distance companies in the U.S., AT&T and Sprint, wanted to merge, the deal would require approval from the Federal Communications Commission (FCC). The FCC would probably regard a merger of the two giants as the creation of a monopoly or, at the very least, a threat to competition in the industry.
Closing the Deal Finally, once the target company agrees to the tender offer and regulatory requirements are met, the merger deal will be executed by means of some transaction. In a merger in which one company buys another, the acquiring company will pay for the target company's shares with cash, stock or both. A cash-for-stock transaction is fairly straightforward: target company shareholders receive a cash payment for each share purchased. This transaction is treated as a taxable sale of the shares of the target company. If the transaction is made with stock instead of cash, then it's not taxable. There is simply an exchange of share certificates. The desire to steer clear of the tax man explains why so many M&A deals are carried out as stock-for-stock transactions. When a company is purchased with stock, new shares from the acquiring company's stock are issued directly to the target company's shareholders, or the new shares are sent to a broker who manages them for target company shareholders. The shareholders of the target company are only taxed when they sell their new shares. When the deal is closed, investors usually receive a new stock in their portfolios - the acquiring company's expanded stock. Sometimes investors will get new stock identifying a new corporate entity that is created by the M&A deal.
Mergers and Acquisitions: Why They Can Fail
It's no secret that plenty of aquisition don't work. Those who advocate acquisition will argue that the acquisition will cut costs or boost revenues by more than enough to justify the price premium. It can sound so simple: just combine computer systems, merge a few departments, use sheer size to force down the price of supplies and the merged giant should be more profitable than its parts. In theory, 1+1 = 3 sounds great, but in practice, things can go awry.
Historical trends show that roughly two thirds of big acquisitions will disappoint on their own terms, which means they will lose value on the stock market. The motivations that drive acquisitions can be flawed and efficiencies from economies of scale may prove elusive. In many cases, the problems associated with trying to make merged companies work are all too concrete.
Flawed Intentions
For starters, a booming stock market encourages acquisitions, which can spell trouble. Deals done with highly rated stock as currency are easy and cheap, but the strategic thinking behind them may be easy and cheap too. Also, acquisitions are often attempt to imitate: somebody else has done a big acquisition, which prompts other top executives to follow suit.
The executive ego, which is boosted by buying the competition, is a major force in M&A, especially when combined with the influences from the bankers, lawyers who can earn big fees from clients engaged in acquisitions. Most CEOs get to where they are because they want to be the biggest and the best, and many top executives get a big bonus for acquisition deals, no matter what happens to the share price later.
The Obstacles to Making it Work If the corporate cultures of the companies are very different. When a company is acquired, the decision is typically based on product or market synergies, but cultural differences are often ignored. It's a mistake to assume that personnel issues are easily overcome. For example, employees at a target company might be accustomed to easy access to top management, flexible work schedules or even a relaxed dress code. These aspects of a working environment may not seem significant, but if new management removes them, the result can be resentment and shrinking productivity. Companies often focus too intently on cutting costs following acquisitions, while revenues, and ultimately, profits, suffer. Merging companies can focus on integration and cost-cutting so much that they neglect day-to-day business, thereby prompting nervous customers to flee. This loss of revenue momentum is one reason so many acquisitions fail to create value for shareholders.
Aditya Birla Group
History
He roots of the Aditya Birla Group date back to the 19th century in the picturesque town of Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started trading in cotton, laying the foundation for the House of Birlas.
Through India's arduous times of the 1850s, the Birla business expanded rapidly. In the early part of the 20th century, our Group's founding father, Ghanshyamdas Birla, set up industries in critical sectors such as textiles and fibre, aluminium, cement and chemicals. As a close confidante of Mahatma Gandhi, he played an active role in the Indian freedom struggle. He represented India at the first and second round-table conference in London, along with Gandhiji. It was at "Birla House" in Delhi that the luminaries of the Indian freedom struggle often met to plot the downfall of the British Raj.
Ghanshyamdas Birla found no contradiction in pursuing business goals with the dedication of a saint, emerging as one of the foremost industrialists of pre-independence India. The principles by which he lived were soaked up by his grandson, Aditya Vikram Birla, our Group's legendary leader
About Company Chairman- Kumar Mangalam Birla
HeadquarterMumbai,Maharashtra (India)
The Aditya Birla Group is an Indian multinational conglomerate corporation headquartered in Mumbai. It operates in 33 countries with more than 136,000 employees worldwide.
Product
The group has diversified business interests and is dominant player in all the sectors in which it operates such as viscose staple fibre, metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, insulators, financial services, telecom, BPO and IT services.
The Aditya Birla group is a US$ 40 billion conglomerate which gets 60% of its revenues from outside India. The Aditya Birla Group has been adjudged the best employer in India and among the top 20 in Asia by the Hewitt-Economic Times and Wall Street Journal Study 2007. The Group has been ranked Number 4 in the Global 'Top Companies for Leaders' survey and ranked Number 1 in Asia Pacific for 2011.
In Countries
Over 53 per cent of its revenues flow from its overseas operations. The Group operates in 36 countries – Australia, Austria, Bangladesh, Brazil, Canada, China, Egypt, France, Germany, Hungary, India, Indonesia, Italy, Ivory Coast, Japan, Korea, Laos, Luxembourg, Malaysia,
Myanmar, Philippines, Poland, Russia, Singapore, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Turkey, UAE, UK, USA and Vietnam
Vision & Mission
To be a premium global conglomerate with a clear focus on each business.
To deliver superior value to our customers, shareholders, employees and society at large.
The Aditya Birla Grouop Logo
The name “Aditya Birla” evokes all that is positive in business and in life. It exemplifies integrity, quality, performance, perfection and above all character.
Our logo is the symbolic reflection of these traits. It is the cornerstone of our corporate identity. It helps us leverage the unique Aditya Birla brand and endows us with a distinctive visual image. Depicted in vibrant, earthy colors, it is very arresting and shows the sun rising over two circles. An inner circle symbolizing the internal universe of the Aditya Birla Group, an outer circle symbolizing the external universe, and a dynamic meeting of rays converging and diverging between the two. Through its wide usage, we create a consistent, impact-oriented Group image. This undoubtedly enhances our profile among our internal and external stakeholders. Our corporate logo thus serves as an umbrella for our Group. It signals the common values and beliefs that guide our behaviour in all our entrepreneurial activities. It embeds a sense of pride,
unity and belonging in all of our 136,000 colleagues spanning 36 countries and 42 nationalities across the globe. Our logo is our best calling card that opens the gateway to the world.
Globally, the Aditya Birla Group is: A metals powerhouse, among the world?s most cost-efficient aluminium and copper producers. Hindalco-Novelis is the largest aluminium rolling company. It is one of the three biggest producers of primary aluminium in Asia, with the largest single location copper smelter.
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No.1 in viscose staple fibre No.1 in carbon black The fourth-largest producer of insulators The fifth-largest producer of acrylic fibre Among the top 10 cement producers The largest Indian MNC with manufacturing operations in the USA Among the best energy-efficient fertiliser plant
In India: A top fashion (branded apparel) and lifestyle player The second-largest player in viscose filament yarn The largest producer in the chlor-alkali sector Among the top three mobile telephony companies A leading player in life insurance and asset management
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Among the top two supermarket chains in the retail business Among the top 10 BPO companies
Rock solid in fundamentals, the Aditya Birla Group nurtures a culture where success does not come in the way of the need to keep learning afresh, to keep experimenting.
Beyond business - The Aditya Birla Group: Works in 3,000 villages. Reaches out to seven million people, annually through the Aditya Birla Centre for Community Initiatives and Rural Development, spearheaded by Mrs. Rajashree Birla. Focuses on healthcare, education, sustainable livelihood, infrastructure and espousing social reform in India, Asia, Egypt, Philippines, Thailand, Laos, Indonesia, Korea and Brazil
In India: Our Group runs 42 schools, which provide quality education to 45,000 children. Of these, over 18,000 children receive free education. Its 18 hospitals tend to more than a million villagers. In line with its commitment to sustainable development, has partnered with the Columbia . University in establishing the Columbia Global Centre?s Earth Institute in Mumbai.
Achievement in 2012
Aditya Birla Retail Ltd was presented with the "Master Brand Award 2012" By the World Brand Congress on 14th February 2012 in Mumbai. The Master Brand Award is conferred upon those brands that appeal to a large set of consumers from premium to mass while constantly keeping in mind a consumer centric approach. Aditya Birla Retail Limited was presented the prestigious "Retail Best Employer of the Year" award by the global jury of the Asia Retail Congress 2012 in Mumbai. At the same event, CEO Mr. Thomas Varghese was awarded "CEO of the Year" by the Asia Retail Congress, 2012.
The Asia Retail Congress is Asia's single most important global platform to promote world-class retail practices. These awards are aimed at honouring the best, in the Asian retail scenario. The Asia Retail Congress is represented by 100 countries across the world
Columbian Chemicals
History
Columbian?s history dates back to the 1860s when carbon black was first utilized for industrial applications. The company?s name today evolved from Columbian Carbon Company, which was formed in 1922 from the consolidation of several small carbon black manufacturers. Throughout its rich history, Columbian has led the way in many areas of the carbon black industry. Here is a sampling of the many “firsts” that Columbian Chemicals brought to the industry:
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First to produce carbon black to reinforce rubber First to produce carbon black beads (Micronex Beads) First to produce coarse, fine, and very fine furnace black First to study the surface activity of carbon black (pH) First to study the absorptive of carbon black (DPG) First to use electron microscopy to study carbon black
About the Company
Chief executive & president - Mr. Jae Sup Lee HeadquarterMarietta, Georgia (United State)
In 1986 Columbian was acquired by Phelps Dodge Corporation and over the next two decades the company expanded its operations in Europe and acquired operations in South America and Asia.
In 1999, Columbian opened its current Headquarters and Technology Center in Marietta, Georgia, centralizing its support functions and bringing cutting-edge technology to the carbon black industry. In its state-of-the-art labs, Columbian Chemicals is moving rapidly into the 21st century, developing ever better carbon black products and capitalizing on its carbon-related expertise to explore new avenues of growth.
In March of 2006, Columbian was acquired by a company jointly owned by DC Chemical Co. and One Equity Partners. DC Chemical is a leading South Korean company, based in Seoul. One Equity Partners is a private equity affiliate of J.P. Morgan Chase & Co. In November 2009, One Equity Partners bought out the controlling interest in Columbian.
In 2011, Aditya Birla Group acquired Columbian Chemicals company to become the largest Carbon Black producer in the world.
Columbian Chemicals Company, located in Southwest Kansas, United States, manufactures carbon black, a fine powder used as a pigment and reinforcing agent in rubber, plastic and liquid products. Committed to the environment and to operational excellence, Columbian Chemicals
achieved ISO 14001 environmental management system registration of its 11 carbon black manufacturing facilities in June 2005. They are a global provider of high-quality carbon black additives for rubber, plastic, and liquid products. Their products add strength, durability, and enhanced performance to products consumers use every day such as automobile tires and toner in printers. Their company has been in business for more than 100 years, and this is attributable in part to Their commitment to providing value to Their customers. They believe that each customer is unique, with a different set of needs based on individual markets, strategies and competitive dynamics. At Columbian Chemicals Company, we are committed to understanding your needs so that we can better help you succeed. They offer a wide range of carbon black products for rubber, plastic, liquid, and other industrial applications that are designed.
Products
Columbian Carbon Blacks
Carbon black is the product of combustion – pyrolytic process. The process typically converts petroleum-based feedstock oil into carbon black by injecting oil into a reactor, which “cracks” the oil at temperatures in excess of 1000°C. The reaction process, occurring in milliseconds, ends with a quenching step at the reactor?s outlet.
A carbon black aerosol stream emerges from the reactor and then passes through a series of filters to separate the carbon black from the combustion gases. The carbon black is collected as powder or granular product and packaged for delivery to customers in every part of the world.
Carbon black colloidal and performance properties are a function of a number of process factors. Columbian adjusts these properties to produce high quality ASTM grades and specialty grades to meet the specific end-market requirements where carbon black is consumed.
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Industrial Carbon Black Products
Columbian Chemicals Company produces a wide range of specialty carbon black grades specifically designed to meet the needs of plastics, inks, coatings manufacturers. Look for Columbian?s Raven, Conductex, and Cope black carbon black grades to solve their most challenging problems and to provide unparalleled performance for your products.
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Rubber Carbon Black Products
Columbian Chemicals Company produces a complete line of high quality ASTM furnace carbon black grades, trademarked as Statex and Furnex.
Aditya Birla Group to acquire Columbian Chemicals
“BIRLA CARBON” In Value acquire
The acquisition of US-based carbon black specialist Columbian Chemicals by the Aditya Birla Group for $875 million ( 4,016 crore) creates strategic value, pitch forking the Indian major, with a combined capacity of 2 million tonnes, as the world's largest producer by volume of carbon black, a crude oil derivative used in the rubber industry for tires and as pigment for paints and inks.
Group company Hindalco is already the world's largest rolled-aluminium producer, after its purchase of can maker Novelis in 2007.
ABG has formed a new board of directors for CCC with Mr. Kumar Mangalam Birla, the chairman of ABG, as the new chairman of CCC. Other Directors in the Board include Rajashree Birla, Rajiv Dube, Santrupt Misra, D D Rathi and Kevin Boyle, CEO, Columbian Chemicals.
Debt for acquisition
The group will raise debt for the acquisition, because of which two of its three associate companies will see $450 million in debt on their balance sheet for funding the acquistion.
ANZ, BankAM, HSBC, RBS and StanChart are participating in the financing of the transaction and were also the financial advisors for the acquisition, which according to Birla will yield cost-savings of $50 million every year.
Why CCC targeted
Columbian Chemicals is among the world's leading producers of carbon black. Based in Marietta, Georgia, the company and its affiliates own and operate 12 manufacturing facilities in the US, Brazil, Canada, China, England, Germany, Hungary, Italy, Korea and Spain, employing 1,300 people.
CCC has annual revenues of $1 billion and operating profits of $140 million. Hit by the global slowdown, CCC is currently in the red but is expected to turn around by 2012, he added.
What Expected in coming year
The group has restructured the carbon black business based on geographical demarcations. Indian Rayon's carbon black unit will cater to the Sri Lanka and Bangladesh markets. Thai Carbon Black will focus on the Asian markets. Alexandria Carbon Black will handle the US and East European markets.
The group has unified its product branding. All companies now market their products under the common brand name of Birla Carbon. The demand for carbon black, used to manufacture tyres, accessories and consumer products, has been growing due to rising sales of automobiles.
The acquisition will add two million tonnes of carbon black capacity to the Group and extend its reach in the markets of North America, Canada, Brazil, Germany, Italy and China, besides enabling it tap the CCC technology and its research and development team.
The combined revenue of CCC and Aditya Birla Group's carbon black business is about $2 billion. But CCC will continue to remain a separate company.
Benefit for Aditya Birla Group
The deal would help the group leapfrog from a modest fourth position to the numerous position in carbon black in terms of volume. Post acquisition, Aditya Birla Group?s carbon black business would have consolidated revenue totaling $2 billion and earnings before interest, tax, depreciation of $140 million.
The group is now positioned 3% higher than the erstwhile biggest company - Massachusettsbased Cabot - and a staggering 47% higher than German-based Evonik in terms of capacity. In fact, Evonik too has been on the group?s radar for quite some time.
With this acquisition in the carbon black sector, looking at a global market dominance in each of the three verticals in the coming few years
With 16 manufacturing facilities located in nine countries, Columbian Chemicals will help the group in bringing mature markets of North America and Europe under its umbrella, which together constitute a capacity of 3.24 million tonne, a share of 22% of the total 14.26 million tonne global carbon black pie.
Conclusion
One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a acquisition will deliver enhanced market power. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals.
BIBLIOGRAPHY
www.frost.com www.columbianchemicals.com www.adityabirla.com www.bloomberg.com/news/2011-01-31/aditya-birla-group-agrees-to-buycolumbian-chemicals-update1-.html www.scribd.com
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MASTER OF COMMERCE PART - I
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Project On : Aditya Birla Group acquire Columbian Chemicals Company
Aditya Birla Group (ABG) (Acquirer Company) Columbian Chemicals Company (CCC) (Target Company)
Introduction
(M&A) and corporate restructuring are a big part of the corporate finance world. Indian enterprises were subjected to strict control regime before 1990s. This has led to haphazard growth of Indian corporate enterprises during that period. The reforms process initiated by the Government since 1991, has influenced the functioning and governance of Indian enterprises which has resulted in adoption of different growth and expansion strategies by the corporate enterprises. In that process, mergers and acquisitions (M&As) have become a common phenomenon. M&As are not new in the Indian economy. In the past also, companies have used M&As to grow and now, Indian corporate enterprises are refocusing in the lines of core competence, market share, global competitiveness and consolidation. This process of refocusing has further been hastened by the arrival of foreign competitors. In this backdrop, Indian corporate enterprises have undertaken restructuring exercises primarily through M&As to create a formidable presence and expand in their core areas of interest.
Acquisitions
When a company takes over the control of another company through mutual agreement it is called acquisition. An acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another - there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile.
Acquisition may be occur in this form :
? Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business. ? In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. ? Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publiclylisted shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved.
Advantage of acquisition are :
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Speed: It provide ability to speedily acquire resources and competencies not held in house.It allows entry into new products and new markets. Risks and costs of new product development decrease.
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Market power: It builds market presence. Market share increases. Competition decrease. Excessive competition can be avoided by shut down of capacity. Diversification is aggrieved. Synergistic benefits are gained.
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Overcome entry barrier: It overcomes market entry barrier by acquiring an existing organization. The risk of competitive reaction decrease.
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Financial gain: Organization with low share value or low price earnings ratio can be acquired to take short term gains through assets stripping.
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Resources and competencies: Acquisition of resources and competencies not available in house can be a motive for merger and acquisition.
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Stakeholder expectations: Stakeholder may expect growth through acquisitions.
Disadvantage of acquisition are:
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Integration problems: The activities of new and old organizations may be difficult to integrate. Cultural fit can be problematic. Employees may resist it.
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High cost: The acquirer may pay high cost, especially in cases of hostile takeover bids. Value may not be added for the acquirer.
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Financial consequences: The returns from acquisitions may not be attractive. Executed cost saving may not materialize.
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Unrelated diversification: This may create problem of managing resources and competencies.
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Too much focus: Too much managerial focus on acquisitions can be detrimental to internal development.
Purpose of merger and acquisition
The company which proposes to acquire another company is knows differently in different modes of acquisition, the familiar ones are; „predator, offer or, corporate raider (for takeover bids), etc. The transferee company is also denoted as victim, offered, acquire or target etc. The purpose for an offer or company for acquiring another company shall be reflected in the corporate objective. It has to decide the specific objectives to be achieved through acquisition.
1. Procurement of supplies
a. To safeguard the source of supplies of raw material or intermediary product; b. To obtain economies of purchases in the form of discount, savings in transportation costs, overhead costs in buying department, etc. c. To share the benefits of suppliers economies by standardizing the materials.
2. Revamping production facilities
a. To achieve economies of scale by amalgamating production facilities through more intensive utilization of plan and resources; b. To standardize product specifications, improvement of quality of product, expanding market and aiming at consumers satisfaction through strengthening after sale services; c. To obtain improved production technology and knowhow from the offered company to reduce cost, improve quality and produce competitive products to retain and improve market share.
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Market expansion and strategy’s a. b. To eliminate competition and protect existing market; To obtain new market outlets in possession of the offered;
c. To obtain new product for diversification or substitution of existing products and to enhance the product range; d. Strengthening retail outlets and sale depots to rationalize distribution; e. To reduce advertising cost and improve public image of the offered company; f. Strategic control of patents and copyrights.
4. Financial strength
a. To improve liquidity and have direct access to cash resources; b. To dispose of surplus and outdated assets for cash out of combined enterprise; c. To enhance gearing capacity, borrow on better strength and greater assets backing; d. To avail of tax benefits; e. To improve EPS.
5. General gains
a. to improve its own image and attract superior managerial talents to manage its affairs; b. to offer better satisfaction to consumers or users of the product.
6. Own developmental plans
The purpose of acquisition is backed by the offer or company?s own development plans. A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operations having examined its own internal strength where it might not have any problem of taxation, accounting valuation, etc. but might feel resources constraints with limitation of funds and lack of skilled managerial personnel.
It has to aim at a suitable combination where it could have opportunities to supplement its funs by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its market position.
7. Strategic purpose
The Acquirer Company views the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategy. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.
8. Corporate friendliness
Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations.
9. Desired level of integration
Mergers and acquisitions are pursued to obtain the desired level of integration between the two combining business houses. Such integration could be operational or financial. This gives birth to conglomerate combinations. The purpose and the requirements of the offer or company go a long way in selecting a suitable partner for merger or acquisition in business combinations.
Reasons for merger or acquisition
There is not one single reason for a merger or takeover but a multitude of reasons cause mergers and acquisitions which are precisely discussed below: 1. Synergistic operating economies It is assumed that existing undertakings are operating at a level below optimum. But when two undertakings combine their resources and efforts they may with combined efforts produce better results than two separate undertakings because of savings in operating costs viz. combined sales offices, staff facilities, plants management, etc. which lower the operating costs. Thus, the resultant economies are known as synergistic operating economies. The worth of the combined undertaking should be greater than the sum of the worth of the two separate undertakings i.e. 2+2 = 5.Synergy means working together. 2. Diversification Mergers and acquisitions are motivated with the objective to diversify the activities so as to avoid putting all the eggs in one basket and obtain advantage of joining the resources for enhanced debt financing and better serviceability to shareholders. Such amalgamations result in creating conglomeratic undertakings. But critics hold that diversification caused by merger of companies does not benefit the shareholders as they can get better returns by having diversified portfolios by holding individual shares of these companies. 3. Taxation advantages Mergers take place to have benefits of tax laws and company having accumulated losses may merge with a profit earning company that will shield the income from taxation. Section 72A of Income Tax Act, 1961 provides this incentive for reverse mergers for the survival of sick.
4.Growth advantage Mergers and acquisitions are motivated with a view to sustain growth or to acquire growth. To develop new areas becomes costly, risky and difficult than to acquire a company in a growth sector even though the acquisition is on premium rather than investing in a new assets or new establishments. 5. Production capacity reduction To reduce capacity of production merger is sometimes used as a tool particularly during recessionary times as was in early 1980 in USA. The technique is used to nationalize traditional industries. 6. Managerial motivates Manager?s benefit in rank, status and perquisites as the enterprise grows and expands because their salaries, perquisites and status often increase with the size of the enterprise. The acquirer may motivate managerial support by assuring benefits of larger size of the company to the managerial staff. The resultant large company can offer better security for salary earners. 7. Acquisition of specific assets Surviving company may purchase only the assets of the other company in merger. Sometimes vertical mergers are done with the motive to secure source of raw material but acquirer may purchase the specific assets of the acquire rather than acquiring the whole undertaking with assets and liabilities.
The assets may also be acquired at a discount to obtain a going concern cheaply. There can be many situations to take over the assets of a company at discount viz. (i) The acquire may be in possession of valuable land and property shown at depreciated value/historical costs in books of account which underestimates the current replacement value. Thus, acquirer shall be benefited by acquiring the assets of the company and selling them off subsequently; (ii) to acquire non-profit making company, close down its loss making activities and sell off the profitable sector to make gains; (iii) The existing management is incapable of utilizing the assets, the acquirer might take over un geared company and increase its debt secured on acquirers assets. 8. Acquisition by management or leveraged buyouts The acquisition of a company can be had by the management personnel. It is known as management buyout. This practice is common in USA for over 25 years and quite in vogue in UK. Management may raise capital from the market or institutions to acquire the company on the strength of its assets, known as leveraged buyouts. 9. Other reasons There may be many other reasons motivating mergers in addition to the above ones viz. profit enhancement for the company, achieving efficiency, increasing market power, tax and accounting opportunities, growth as a goal and many speculative goals etc. depending upon the circumstances and prevailing conditions within the company and the economy of the country
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:
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Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.
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Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office
supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.
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Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.
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Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two. Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a later section of this tutorial.
Mergers and Acquisitions in India
M&As have played an important role in the transformation of the industrial sector of India since the Second World War period. The economic and political conditions during the Second World War and post–war periods (including several years after independence) gave rise to a spate of M&As. The inflationary situation during the wartime enabled many Indian businessmen to amass income by way of high profits and dividends and black money. There was a craze to acquire control over industrial units in spite of swollen prices of shares. The practice of cornering shares in the open market and trafficking of managing agency rights with a view to acquiring control over the management of established and reputed companies had come prominently to light. The net effect of these two practices, via of acquiring control over ownership of companies and of acquiring control over managing agencies, was that large number of concerns passed into the hands of prominent industrial houses of the country (Kothari, 1967). As it became clear that India would be gaining independence, British managing agency houses gradually liquidated their holdings at fabulous prices offered by Indian Business community. Besides, the transfer of managing agencies, there were a large number of cases of transfer of interests in individual industrial units from British to Indian hands. Further at that time, it used to be the fashion to obtain control of insurance companies for the purpose of utilizing their funds to acquire substantial holdings in other companies. The big industrialists also floated banks and investment companies for furtherance of the objective of acquiring control over established concerns.
The post-war period is regarded as an era of M&As. Large number of M&As occurred in industries like jute, cotton textiles, sugar, insurance, banking, electricity and tea plantation. It has been found that, although there were a large number of M&As in the early post independence period, the anti-big government policies and regulations of the 1960s and 1970s seriously deterred M&As. This does not, of course, mean that M&As were uncommon during the controlled regime. The deterrent was mostly to horizontal combinations which, result in concentration of economic power to the common detriment. However, there were many conglomerate combinations. In some cases, even the Government encouraged M&As; especially for sick units. Further, the formation of the Life Insurance Corporation and nationalization of the life insurance business in 1956 resulted in the takeover of 243 insurance companies. There was a similar development in the general insurance business. The national textiles corporation (NTC) took over a large number of sick textiles units (2004).
Recent Development in Mergers and Acquisitions
The functional importance of M&As is undergoing a sea change since liberalization in India. The MRTP Act and other legislations have been amended paving way for large business groups and foreign companies to resort to the M&A route for growth. Further The SEBI (Substantial Acquisition of Shares and Take over) Regulations, 1994 and 1997, have been notified. The decision of the Government to allow companies to buy back their shares through the promulgation of buy back ordinance, all these developments, have influenced the market for corporate control in India. M&As as a strategy employed by several corporate groups like R.P. Goenka, Vijay Mallya and Manu Chhabria for growth and expansion of the empire in India in the eighties. Some of the companies taken over by RPG group included Dunlop, Ceat, Philips Carbon Black, Gramaphone India. Even, the known and big industrial houses of India, like Reliance Group, Tata Group and Birla group have engaged in several big deals.
The Main Idea
One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, costefficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
From the point of Investor
It's hard for investors to know when a deal is worthwhile. The burden of proof should fall on the acquiring company. To find mergers that have a chance of success, investors should start by looking for some of these simple criteria:
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A reasonable purchase price - A premium of, say, 10% above the market price seems within the bounds of level-headedness. A premium of 50%, on the other hand, requires synergy of stellar proportions for the deal to make sense. Stay away from companies that participate in such contests.
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Cash transactions - Companies that pay in cash tend to be more careful when calculating bids and valuations come closer to target. When stock is used as the currency for acquisition, discipline can go by the wayside.
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Sensible appetite – An acquiring company should be targeting a company that is smaller and in businesses that the acquiring company knows intimately. Synergy is hard to create from companies in disparate business areas. Sadly, companies have a bad habit of biting off more than they can chew in mergers.
Mergers are awfully hard to get right, so investors should look for acquiring companies with a healthy grasp of reality.
Mergers and Acquisitions: Doing the Deal
Start with an Offer When the CEO and top managers of a company decide that they want to do a merger or acquisition, they start with a tender offer. The process typically begins with the acquiring company carefully and discreetly buying up shares in the target company, or building a position. Once the acquiring company starts to purchase shares in the open market, it is restricted to buying 5% of the total outstanding shares before it must file with the SEC. In the filing, the company must formally declare how many shares it owns and whether it intends to buy the company or keep the shares purely as an investment. Working with financial advisors and investment bankers, the acquiring company will arrive at an overall price that it's willing to pay for its target in cash, shares or both. The tender offer is then frequently advertised in the business press, stating the offer price and the deadline by which the shareholders in the target company must accept (or reject) it. The Target's Response Once the tender offer has been made, the target company can do one of several things:
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Accept the Terms of the Offer - If the target firm's top managers and shareholders are happy with the terms of the transaction, they will go ahead with the deal.
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Attempt to Negotiate - The tender offer price may not be high enough for the target company's shareholders to accept, or the specific terms of the deal may not be attractive. In a merger, there may be much at stake for the management of the target - their jobs, in particular. If they're not satisfied with the terms laid out in the tender offer, the target's
management may try to work out more agreeable terms that let them keep their jobs or, even better, send them off with a nice, big compensation package. Not surprisingly, highly sought-after target companies that are the object of several bidders will have greater latitude for negotiation. Furthermore, managers have more negotiating power if they can show that they are crucial to the merger's future success.
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Execute a Poison Pill or Some Other Hostile Takeover Defense – A poison pill scheme can be triggered by a target company when a hostile suitor acquires a predetermined percentage of company stock. To execute its defense, the target company grants all shareholders - except the acquiring company - options to buy additional stock at a dramatic discount. This dilutes the acquiring company's share and intercepts its control of the company.
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Find a White Knight - As an alternative, the target company's management may seek out a friendlier potential acquiring company, or white knight. If a white knight is found, it will offer an equal or higher price for the shares than the hostile bidder.
Mergers and acquisitions can face scrutiny from regulatory bodies. For example, if the two biggest long-distance companies in the U.S., AT&T and Sprint, wanted to merge, the deal would require approval from the Federal Communications Commission (FCC). The FCC would probably regard a merger of the two giants as the creation of a monopoly or, at the very least, a threat to competition in the industry.
Closing the Deal Finally, once the target company agrees to the tender offer and regulatory requirements are met, the merger deal will be executed by means of some transaction. In a merger in which one company buys another, the acquiring company will pay for the target company's shares with cash, stock or both. A cash-for-stock transaction is fairly straightforward: target company shareholders receive a cash payment for each share purchased. This transaction is treated as a taxable sale of the shares of the target company. If the transaction is made with stock instead of cash, then it's not taxable. There is simply an exchange of share certificates. The desire to steer clear of the tax man explains why so many M&A deals are carried out as stock-for-stock transactions. When a company is purchased with stock, new shares from the acquiring company's stock are issued directly to the target company's shareholders, or the new shares are sent to a broker who manages them for target company shareholders. The shareholders of the target company are only taxed when they sell their new shares. When the deal is closed, investors usually receive a new stock in their portfolios - the acquiring company's expanded stock. Sometimes investors will get new stock identifying a new corporate entity that is created by the M&A deal.
Mergers and Acquisitions: Why They Can Fail
It's no secret that plenty of aquisition don't work. Those who advocate acquisition will argue that the acquisition will cut costs or boost revenues by more than enough to justify the price premium. It can sound so simple: just combine computer systems, merge a few departments, use sheer size to force down the price of supplies and the merged giant should be more profitable than its parts. In theory, 1+1 = 3 sounds great, but in practice, things can go awry.
Historical trends show that roughly two thirds of big acquisitions will disappoint on their own terms, which means they will lose value on the stock market. The motivations that drive acquisitions can be flawed and efficiencies from economies of scale may prove elusive. In many cases, the problems associated with trying to make merged companies work are all too concrete.
Flawed Intentions
For starters, a booming stock market encourages acquisitions, which can spell trouble. Deals done with highly rated stock as currency are easy and cheap, but the strategic thinking behind them may be easy and cheap too. Also, acquisitions are often attempt to imitate: somebody else has done a big acquisition, which prompts other top executives to follow suit.
The executive ego, which is boosted by buying the competition, is a major force in M&A, especially when combined with the influences from the bankers, lawyers who can earn big fees from clients engaged in acquisitions. Most CEOs get to where they are because they want to be the biggest and the best, and many top executives get a big bonus for acquisition deals, no matter what happens to the share price later.
The Obstacles to Making it Work If the corporate cultures of the companies are very different. When a company is acquired, the decision is typically based on product or market synergies, but cultural differences are often ignored. It's a mistake to assume that personnel issues are easily overcome. For example, employees at a target company might be accustomed to easy access to top management, flexible work schedules or even a relaxed dress code. These aspects of a working environment may not seem significant, but if new management removes them, the result can be resentment and shrinking productivity. Companies often focus too intently on cutting costs following acquisitions, while revenues, and ultimately, profits, suffer. Merging companies can focus on integration and cost-cutting so much that they neglect day-to-day business, thereby prompting nervous customers to flee. This loss of revenue momentum is one reason so many acquisitions fail to create value for shareholders.
Aditya Birla Group
History
He roots of the Aditya Birla Group date back to the 19th century in the picturesque town of Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started trading in cotton, laying the foundation for the House of Birlas.
Through India's arduous times of the 1850s, the Birla business expanded rapidly. In the early part of the 20th century, our Group's founding father, Ghanshyamdas Birla, set up industries in critical sectors such as textiles and fibre, aluminium, cement and chemicals. As a close confidante of Mahatma Gandhi, he played an active role in the Indian freedom struggle. He represented India at the first and second round-table conference in London, along with Gandhiji. It was at "Birla House" in Delhi that the luminaries of the Indian freedom struggle often met to plot the downfall of the British Raj.
Ghanshyamdas Birla found no contradiction in pursuing business goals with the dedication of a saint, emerging as one of the foremost industrialists of pre-independence India. The principles by which he lived were soaked up by his grandson, Aditya Vikram Birla, our Group's legendary leader
About Company Chairman- Kumar Mangalam Birla
HeadquarterMumbai,Maharashtra (India)
The Aditya Birla Group is an Indian multinational conglomerate corporation headquartered in Mumbai. It operates in 33 countries with more than 136,000 employees worldwide.
Product
The group has diversified business interests and is dominant player in all the sectors in which it operates such as viscose staple fibre, metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, insulators, financial services, telecom, BPO and IT services.
The Aditya Birla group is a US$ 40 billion conglomerate which gets 60% of its revenues from outside India. The Aditya Birla Group has been adjudged the best employer in India and among the top 20 in Asia by the Hewitt-Economic Times and Wall Street Journal Study 2007. The Group has been ranked Number 4 in the Global 'Top Companies for Leaders' survey and ranked Number 1 in Asia Pacific for 2011.
In Countries
Over 53 per cent of its revenues flow from its overseas operations. The Group operates in 36 countries – Australia, Austria, Bangladesh, Brazil, Canada, China, Egypt, France, Germany, Hungary, India, Indonesia, Italy, Ivory Coast, Japan, Korea, Laos, Luxembourg, Malaysia,
Myanmar, Philippines, Poland, Russia, Singapore, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Turkey, UAE, UK, USA and Vietnam
Vision & Mission
To be a premium global conglomerate with a clear focus on each business.
To deliver superior value to our customers, shareholders, employees and society at large.
The Aditya Birla Grouop Logo
The name “Aditya Birla” evokes all that is positive in business and in life. It exemplifies integrity, quality, performance, perfection and above all character.
Our logo is the symbolic reflection of these traits. It is the cornerstone of our corporate identity. It helps us leverage the unique Aditya Birla brand and endows us with a distinctive visual image. Depicted in vibrant, earthy colors, it is very arresting and shows the sun rising over two circles. An inner circle symbolizing the internal universe of the Aditya Birla Group, an outer circle symbolizing the external universe, and a dynamic meeting of rays converging and diverging between the two. Through its wide usage, we create a consistent, impact-oriented Group image. This undoubtedly enhances our profile among our internal and external stakeholders. Our corporate logo thus serves as an umbrella for our Group. It signals the common values and beliefs that guide our behaviour in all our entrepreneurial activities. It embeds a sense of pride,
unity and belonging in all of our 136,000 colleagues spanning 36 countries and 42 nationalities across the globe. Our logo is our best calling card that opens the gateway to the world.
Globally, the Aditya Birla Group is: A metals powerhouse, among the world?s most cost-efficient aluminium and copper producers. Hindalco-Novelis is the largest aluminium rolling company. It is one of the three biggest producers of primary aluminium in Asia, with the largest single location copper smelter.
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No.1 in viscose staple fibre No.1 in carbon black The fourth-largest producer of insulators The fifth-largest producer of acrylic fibre Among the top 10 cement producers The largest Indian MNC with manufacturing operations in the USA Among the best energy-efficient fertiliser plant
In India: A top fashion (branded apparel) and lifestyle player The second-largest player in viscose filament yarn The largest producer in the chlor-alkali sector Among the top three mobile telephony companies A leading player in life insurance and asset management
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Among the top two supermarket chains in the retail business Among the top 10 BPO companies
Rock solid in fundamentals, the Aditya Birla Group nurtures a culture where success does not come in the way of the need to keep learning afresh, to keep experimenting.
Beyond business - The Aditya Birla Group: Works in 3,000 villages. Reaches out to seven million people, annually through the Aditya Birla Centre for Community Initiatives and Rural Development, spearheaded by Mrs. Rajashree Birla. Focuses on healthcare, education, sustainable livelihood, infrastructure and espousing social reform in India, Asia, Egypt, Philippines, Thailand, Laos, Indonesia, Korea and Brazil
In India: Our Group runs 42 schools, which provide quality education to 45,000 children. Of these, over 18,000 children receive free education. Its 18 hospitals tend to more than a million villagers. In line with its commitment to sustainable development, has partnered with the Columbia . University in establishing the Columbia Global Centre?s Earth Institute in Mumbai.
Achievement in 2012
Aditya Birla Retail Ltd was presented with the "Master Brand Award 2012" By the World Brand Congress on 14th February 2012 in Mumbai. The Master Brand Award is conferred upon those brands that appeal to a large set of consumers from premium to mass while constantly keeping in mind a consumer centric approach. Aditya Birla Retail Limited was presented the prestigious "Retail Best Employer of the Year" award by the global jury of the Asia Retail Congress 2012 in Mumbai. At the same event, CEO Mr. Thomas Varghese was awarded "CEO of the Year" by the Asia Retail Congress, 2012.
The Asia Retail Congress is Asia's single most important global platform to promote world-class retail practices. These awards are aimed at honouring the best, in the Asian retail scenario. The Asia Retail Congress is represented by 100 countries across the world
Columbian Chemicals
History
Columbian?s history dates back to the 1860s when carbon black was first utilized for industrial applications. The company?s name today evolved from Columbian Carbon Company, which was formed in 1922 from the consolidation of several small carbon black manufacturers. Throughout its rich history, Columbian has led the way in many areas of the carbon black industry. Here is a sampling of the many “firsts” that Columbian Chemicals brought to the industry:
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First to produce carbon black to reinforce rubber First to produce carbon black beads (Micronex Beads) First to produce coarse, fine, and very fine furnace black First to study the surface activity of carbon black (pH) First to study the absorptive of carbon black (DPG) First to use electron microscopy to study carbon black
About the Company
Chief executive & president - Mr. Jae Sup Lee HeadquarterMarietta, Georgia (United State)
In 1986 Columbian was acquired by Phelps Dodge Corporation and over the next two decades the company expanded its operations in Europe and acquired operations in South America and Asia.
In 1999, Columbian opened its current Headquarters and Technology Center in Marietta, Georgia, centralizing its support functions and bringing cutting-edge technology to the carbon black industry. In its state-of-the-art labs, Columbian Chemicals is moving rapidly into the 21st century, developing ever better carbon black products and capitalizing on its carbon-related expertise to explore new avenues of growth.
In March of 2006, Columbian was acquired by a company jointly owned by DC Chemical Co. and One Equity Partners. DC Chemical is a leading South Korean company, based in Seoul. One Equity Partners is a private equity affiliate of J.P. Morgan Chase & Co. In November 2009, One Equity Partners bought out the controlling interest in Columbian.
In 2011, Aditya Birla Group acquired Columbian Chemicals company to become the largest Carbon Black producer in the world.
Columbian Chemicals Company, located in Southwest Kansas, United States, manufactures carbon black, a fine powder used as a pigment and reinforcing agent in rubber, plastic and liquid products. Committed to the environment and to operational excellence, Columbian Chemicals
achieved ISO 14001 environmental management system registration of its 11 carbon black manufacturing facilities in June 2005. They are a global provider of high-quality carbon black additives for rubber, plastic, and liquid products. Their products add strength, durability, and enhanced performance to products consumers use every day such as automobile tires and toner in printers. Their company has been in business for more than 100 years, and this is attributable in part to Their commitment to providing value to Their customers. They believe that each customer is unique, with a different set of needs based on individual markets, strategies and competitive dynamics. At Columbian Chemicals Company, we are committed to understanding your needs so that we can better help you succeed. They offer a wide range of carbon black products for rubber, plastic, liquid, and other industrial applications that are designed.
Products
Columbian Carbon Blacks
Carbon black is the product of combustion – pyrolytic process. The process typically converts petroleum-based feedstock oil into carbon black by injecting oil into a reactor, which “cracks” the oil at temperatures in excess of 1000°C. The reaction process, occurring in milliseconds, ends with a quenching step at the reactor?s outlet.
A carbon black aerosol stream emerges from the reactor and then passes through a series of filters to separate the carbon black from the combustion gases. The carbon black is collected as powder or granular product and packaged for delivery to customers in every part of the world.
Carbon black colloidal and performance properties are a function of a number of process factors. Columbian adjusts these properties to produce high quality ASTM grades and specialty grades to meet the specific end-market requirements where carbon black is consumed.
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Industrial Carbon Black Products
Columbian Chemicals Company produces a wide range of specialty carbon black grades specifically designed to meet the needs of plastics, inks, coatings manufacturers. Look for Columbian?s Raven, Conductex, and Cope black carbon black grades to solve their most challenging problems and to provide unparalleled performance for your products.
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Rubber Carbon Black Products
Columbian Chemicals Company produces a complete line of high quality ASTM furnace carbon black grades, trademarked as Statex and Furnex.
Aditya Birla Group to acquire Columbian Chemicals
“BIRLA CARBON” In Value acquire
The acquisition of US-based carbon black specialist Columbian Chemicals by the Aditya Birla Group for $875 million ( 4,016 crore) creates strategic value, pitch forking the Indian major, with a combined capacity of 2 million tonnes, as the world's largest producer by volume of carbon black, a crude oil derivative used in the rubber industry for tires and as pigment for paints and inks.
Group company Hindalco is already the world's largest rolled-aluminium producer, after its purchase of can maker Novelis in 2007.
ABG has formed a new board of directors for CCC with Mr. Kumar Mangalam Birla, the chairman of ABG, as the new chairman of CCC. Other Directors in the Board include Rajashree Birla, Rajiv Dube, Santrupt Misra, D D Rathi and Kevin Boyle, CEO, Columbian Chemicals.
Debt for acquisition
The group will raise debt for the acquisition, because of which two of its three associate companies will see $450 million in debt on their balance sheet for funding the acquistion.
ANZ, BankAM, HSBC, RBS and StanChart are participating in the financing of the transaction and were also the financial advisors for the acquisition, which according to Birla will yield cost-savings of $50 million every year.
Why CCC targeted
Columbian Chemicals is among the world's leading producers of carbon black. Based in Marietta, Georgia, the company and its affiliates own and operate 12 manufacturing facilities in the US, Brazil, Canada, China, England, Germany, Hungary, Italy, Korea and Spain, employing 1,300 people.
CCC has annual revenues of $1 billion and operating profits of $140 million. Hit by the global slowdown, CCC is currently in the red but is expected to turn around by 2012, he added.
What Expected in coming year
The group has restructured the carbon black business based on geographical demarcations. Indian Rayon's carbon black unit will cater to the Sri Lanka and Bangladesh markets. Thai Carbon Black will focus on the Asian markets. Alexandria Carbon Black will handle the US and East European markets.
The group has unified its product branding. All companies now market their products under the common brand name of Birla Carbon. The demand for carbon black, used to manufacture tyres, accessories and consumer products, has been growing due to rising sales of automobiles.
The acquisition will add two million tonnes of carbon black capacity to the Group and extend its reach in the markets of North America, Canada, Brazil, Germany, Italy and China, besides enabling it tap the CCC technology and its research and development team.
The combined revenue of CCC and Aditya Birla Group's carbon black business is about $2 billion. But CCC will continue to remain a separate company.
Benefit for Aditya Birla Group
The deal would help the group leapfrog from a modest fourth position to the numerous position in carbon black in terms of volume. Post acquisition, Aditya Birla Group?s carbon black business would have consolidated revenue totaling $2 billion and earnings before interest, tax, depreciation of $140 million.
The group is now positioned 3% higher than the erstwhile biggest company - Massachusettsbased Cabot - and a staggering 47% higher than German-based Evonik in terms of capacity. In fact, Evonik too has been on the group?s radar for quite some time.
With this acquisition in the carbon black sector, looking at a global market dominance in each of the three verticals in the coming few years
With 16 manufacturing facilities located in nine countries, Columbian Chemicals will help the group in bringing mature markets of North America and Europe under its umbrella, which together constitute a capacity of 3.24 million tonne, a share of 22% of the total 14.26 million tonne global carbon black pie.
Conclusion
One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a acquisition will deliver enhanced market power. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals.
BIBLIOGRAPHY
www.frost.com www.columbianchemicals.com www.adityabirla.com www.bloomberg.com/news/2011-01-31/aditya-birla-group-agrees-to-buycolumbian-chemicals-update1-.html www.scribd.com
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