Mergers & Acquisitions: The Good, Bad and Ugly

Mergers & Acquisitions or more commonly knows as M&As include all types of sale of company, sale of assets, joining of two companies, separating two businesses from a single company, strategic sale across the Globe. 

Sometimes you think they make sense like Diageo buying United Breweries or Jet selling a stake to Ethiad.. but some just stupefy us like Tata Motors buying Jaguar Land Rover or Facebook paying USD 19B for Whatsapp or Porsche buying Volkswagen or Volkswagen buying Porsche? 

Do these M&A activity make sense? Are all M&A activities successful? Do these create value for shareholders? Are they even necessary? There are zillion other questions one can ask? Most research indicates that the success of the M&A is 50%.. So how does one be sure that their deal will be success?  

One of the ways and possibly the best is to learn from the experiences from others! 

 We have gathered few examples of deals of all genre here to give you a quick overview on the mistakes people make… 

 The Good: Expected and Unexpected 

Tata Motors – Jaguar Land Rover: Our favourite example for vision. Tata Motor could see the potential Chinese market which Ford could not see. People thought it was crazy to buy a company by paying $ 2.3 B but today Jaguar is paying Tata Motors $ 250 M only by dividends. Forget about the technology, product diversification, entry into European markets etc etc.. 

Disney – Pixar: Mickey and Nemo; Pinocchio and Toy Story, Cinderella and Cars. The merger of legendary Walt Disney and kinds love it animation studio Pixar was a match made in wonderland! With the merger two companies can collaborate to animation, content, production as well as distribution!!  

 The Bad: To fight? To separate? 

Daimer Benz-Chrysler: A typical mega billion ($ 37B) deal that went sour due to a simple reason: No Chemistry… In 1998, both Daimler Benz (manufacturers of Mercedes) and Chrysler dreamed of making trans-Atlantic car making powerhouse. But in 2007, Daimler had to sell Chrysler to an Asset Reconstruction Firm (Cereberus Capital Management). It was a perfect case of corporate culture clash which could not be resolved. Daimler Benz came from a high end league and people at Chrysler thought they were trying to dictate how things get done. 

 Bharti-Walmart: A policy paralysis case! Bharti and Walmart has entered into a JV to run both wholesale cash and carry as well as Retail stores across India. They were running multiple stores in the cash and carry format and were waiting for the government to clear the FDI in retail. After years of logjam government cleared 51% FDI in retail with covenants such as state clearance and minimum investment thresholds! Was it the resignation of the Joint Venture head? Was it investigations on the violations on the foreign corrupt policies act? Or was it just tired of the policy paralysis of our system – Walmart sold off its 49% stake in the retail venture to Bharti and plans to concentrate solely on the cash and carry business. 

 Ranbaxy-Daichii – Buyers Beware? Is this the signal we wish to send to all these multinationals who are looking at the fast growing Indian Companies? When Daichii Sankyo valued Ranbaxy at $ 8.5 B they were buying the biggest pharmaceutical company in India – they were looking to reap benefit of synergies of emerging markets with developed markets as well as generic drugs with portfolio of proprietary drugs. During the last few years the saga has been unfolding with eventually Daichii selling its stake to Sun Pharma at $3.2 B 

 The Ugly – Its better to let them die… 

Aol-Time warner: At the height of the internet craze, two media merged together to form a revolutionary move to fuse the old with the new. In 2001, old school media giant Time-Warner consolidated with American Online (AOL), the internet and email provider of the people, for a whopping $ 111 B. It was considered the combining of best of both worlds: print and electronic! But the synergy of these two dynamically different companies never occurred. The dot-com bust and the dial up internet access spelled disaster. The stocked tanked 80% and AOL became a non-entity with entry of googles and hotmails of the world. 

Apollo-Cooper: The unsuccessful $ 2.5 Bn bid for Cooper by a family run Apollo tires sows seeds of doubt across the globe on the seriousness of the Indian family run businesses. Apollo’s bid for Cooper, hoping to transform itself into the world’s seventh-largest tire maker, was surprising given that the Indian company was a third of the size of the its US target. Apollo relied on a hefty debt package for its ambitious effort. At the hearth of the dispute was opposition from Cooper’s partner in China for the deal and the inability for Apollo management to reach a conclusion with Cooper’s US Union labour. The deal has frizzled to a Cooper pursuing a case for USD 115 M breakup fee from Apollo.  

This article has been contributed by Moneshi Shah, Investment Adviser at Moneybee Investment Advisors Pvt. Ltd.

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