-30480-532130MACROECONOMICS ILCMACROECONOMICS ILC-4648201637030Class: FY-ABatch: 2018-2021Group Members: Akansha Choudhary- 18060222006Apara Kale- 18060222014Meenal Kale- 18060222035Millena Mohanty- 18060222036Riddhi Kasture- 18060222029Suchismita Panda- 1806022204800Class: FY-ABatch: 2018-2021Group Members: Akansha Choudhary- 18060222006Apara Kale- 18060222014Meenal Kale- 18060222035Millena Mohanty- 18060222036Riddhi Kasture- 18060222029Suchismita Panda- 18060222048right6350Topic:Mergers and acquisitionsTopic:Mergers and acquisitionsMERGERS AND ACQUISITIONSMergers and acquisitions are ways by which corporations unify their assets which were earlier under the separate companies with a legal procedure.What is a merger?A merger is a corporate amalgamation of two or more firms into a single unit, usually because of the absorption of certain firm/s by a leading one. A merger terminates the two separate entities, and the remaining corporation assumes all the rights, assets and liabilities of the corporations before the merger. A merger happens when:A a firm buys the other’s assets with cash or securities.B a firm buys the other firm’s shares or stock. There are three methods by which a merger takes place-Horizontal: this is when the firms produce the same good or service for the same market.
Market-extensional: this is when the firms produce the same good or service but for different markets.Vertical: this is when the firm buys one of its customers or suppliers. A conglomerate is when unrelated firms merge or one acquires the other. A merger is different from a consolidation, wherein two companies completely lose their individual identities and form a totally new corporation.
What is an acquisition?A merger is when two companies decide to unify as a single unit but when companies are forced to perform a merger for financial reasons or otherwise; when a company buys another i.e. when a takeover happens, it is called an acquisition. Even though the motivation for mergers and acquisitions are distinct, it both leads to rise of one unit in place of two prevailing firms.Regulations for M&ACertain laws regulate mergers and acquisitions.
Mergers eliminate the competition in the market to a certain extent and hence applications for a merger or acquisition need to be carefully scrutinized so as to not have a negative effect on the economy/market.Advantages of M&ACertain benefits of M&A are:Better management.Better utilisation of underused assets.Economies of scaleCost reductionQuality improvement which leads to increase in efficiency and hence increase in output.What all should be assessed for a new entity: The competition, market share, business model, possibility to scale the business, barriers to entry etc.
are some of the things that need to be assessed before a merger or acquisition happens. Investors must also inspect the company for losses in shareholder’s value in the past.Motivations/Reasons for mergers and acquisitionsThere are various reasons for M;A:To achieve economies of scale. Economies of scale refers to drop in the cost per unit of a commodity due to increase in the total amount of production. The merged firm can produce at a lower cost together than they could have had they been separate companies.
The sharing of resources and technology avoids the wastage in the process of production and hence leads to more efficiency.It helps gain a control over distribution channels and raw materials when the firms combine their production and delivery system.By combining the firms, the merged firm gets a competitive advantage as it no longer needs to rely on other firms for its factors of production like raw materials.Excess cash balances. An outlet for firms to invest, is to acquire other firms, when the industry has less opportunities for future investment. The apparent reason for using excess cash to obtain firms in different product markets is the diversification of business risk.Reduction of absolute financial costs.
Inefficiency by the target firm when the acquiring firm can perform better in utilization of assets and opportunities.M;A- Impact on small investorsStock holdingsEffect on stock holdings depends on the swap ratio which is the ratio in which the acquiring company offers its own shares for that of the other firms.In most cases, if the merger is successful, stock holdings usually benefit or else the investors lose out.Stock pricesThe share prices of the merged firms usually increase in the long run. If the target company is valued more than it is supposed to be, the stock prices could fall too. If valuations are low, the target company’s shareholder’s value decreases.Few options for small investorsSmall shareholders can vote against the merger or acquisition proposals but their votes are usually considerably less to sway the decision in their favour. Small investors are often dragged along and have to comply with the majority.
If the target company is sold at low price, the minority shareholders are negatively affected.No adverse tax implicationsM;A do not lead to a tax liability for either of the firms. Impact on consumersPrices of commoditiesCertain brands are known for killing small businesses with ultra-low prices and some for the opposite. When certain businesses merge or acquire others, the prices in the market can change substantially.Diversification of productsWhen businesses with similar products merge i.e. horizontal or market-extensional mergers occur, the products supplied by the merged firms can not only be more in quantity but also changed in quality and a little different from the original external attributes too.
J.P. MORGAN AND CHASE MANHATTAN MERGERJ.P. Morgan ;Co.A commercial and investment banking institution founded by J.P.
Morgan in 1871, this banking institution is a predecessor of three largest banking houses of the world, i.e, J.P.
Morgan Chase, Morgan Stanley and Deutsche Bank. This company is sometimes also known as “House of Morgan” or simply “Morgan” at times. In 1901, J.P. Morgan successfully created the world’s first billion-dollar corporation by buying out industrialist Andrew Carnegie and combining some 33 Companies, leading to the creation of United States Steel.
This company has been helping its clients to do first class business for more than 200years. As a firm, they have a glorifying history of leadership, especially during times of financial crisis. In 2011, J.P. Morgan Cazenove became a wholly owned part of J.
P. Morgan, which was originally operating as a joint venture between J.P. Morgan and the U.K. investment bank Cazenove.
In 2011, J.P. Morgan celebrated the 90th Anniversary of the presence of the firm in China.The Chase Manhattan CorporationThe Chase Manhattan Co.
is a Former American holding company, that merged with J.P Morgan & Co. in 2000 to from J.P. Morgan Chase &Co. The company was opened at 40 Wall Street. In 1918, it had merged with the Bank of Metropolis and thus, acquired the first of its many branch offices. On March 31, 1955, Chase National Bank (then the 3rd largest bank) and the Bank of Manhattan Company (the 15th largest) merged to form the Chase Manhattan Bank.
It was reorganized as the Chase Manhattan Corporation in 1969. In 1996, The Chase Manhattan Corporation merged with the nation’s second largest bank, the New-York based Chemical Banking Corporation, to form what was then the largest bank in the United States. The merged bank retained the name The Chase Manhattan Corporation. However, Chase Manhattan’s merger in 2000 with J.P. Morgan created a diverse financial firm, J.P.
Morgan & Chase Co., which secured leadership in retail banking, investment banking and financial services. J.P Morgan and Chase Co.JP Morgan Chase and Co. has been one of the world’s largest, oldest and renowned financial institutions. It is an American Investment bank and financial services company whose headquarters are located in New York City, USA.
The merger of JP Morgan ; Co. and The Chase Manhattan Corporation led to the birth of this Corporation in December 2000.The Morgan Branch of the Corporation traces its history to JP Morgan and Company Inc, established in 1895 and Guaranty Trust Company of New York (1864) which merged in 1959. By the end of the 20th century, it had become one of the world’s most respected investment banking houses.Reasons for the mergerOn September 14th, 2000, Chase Manhattan decided to acquire JP Morgan for $30.9 Billion.
This deal was approved by the boards of both the companies. Acquiring J P Morgan would accelerate the process of Chase’s turning into a global financial centre and hence it was determined to acquire it. Chase had incurred huge losses and had been bankrupt for a long time and since the 1980s, Morgan had started the process to turn into an investment bank from a commercial bank tending to blue-chip list of clients. Buying Morgan could propel Chase into the big leagues of investment banking. It was projected that, together, Chase and Morgan had more than $650 billion in assets, ranking second after Citigroup’s $800billion. The overlapping functions of theirs would be the investment banking tasks of trade of currencies and underwriting bonds and stocks. Chase was one of the biggest credit card issuers in the country and a major lender to individuals seeking to buy houses and cars.
Morgan had a bigger focus on blue-chip clients, be it of individuals or corporations. The new firm came to be called as J.P. Morgan Chase with William B. Harrison, Chairman and Chief Executive of Chase, set to become the Chief Executive of the combined institution. Douglas A. Warner III, Chairman and President of Morgan, was to be the Chairman of J.P.
Morgan Chase. Chase had assets of $396 billion, while Morgan had $266 billion. Chase had operations in nearly 65 countries with a workforce of 80,000 employees. On the other hand, J.P. Morgan had around 16,000 employees.
Merger of J.P. Morgan & Chase Co. And Bank OneOn 14th January, 2004, J.P.
Morgan & Chase Co. and Bank one agreed to merge in a strategic business combination, leading to the establishment of the 2nd largest banking franchise in the United States, that is based on core deposits. The merger was viewed to create assets worth $1.1trilion, a powerhouse in corporate and retail banking and 2300 branches in seventeen states. This deal was said to be the 3rd largest banking deal in the U.S. J.
P. Morgan Chase’s William B. Harrison will be the Chairman and Chief Executive officer. Bank one’s James Dimon would be the President and Chief Operating Officer.
It was predicted that, the combined company will be a leading global financial enterprise, with the top tier positions in consumer banking, investment banking, and other key business segments. In the proposed merger, Bank One merged into JP Morgan Chase and the common stockholders of Bank One would receive 1.32 shares of J.P. Morgan Chase common stock for each share of Bank One common stock they own. The companies said that based on J.P. Morgan Chase’s closing stock price of $39.
22 today, the deal would value each Bank One share at $51.77. That price would represent a 14.5 percent premium over Bank One’s closing price of $45.
22 today. The deal, being announced after the closing of the stock market, had certain implications. During the after-hour trading, Bank One’s shares jumped up to $49.73 whereas, J.
P. Morgan Chase’s stocks fell down to $37.82. FLIPMARTWalmart’s acquisition of FlipkartWalmart said in a media release that Flipkart’s “talent, technology, customer insights and agile and innovative culture” will benefit Walmart..In what is being called as Walmart’s boldest best and Flipkart’s big-billion day, the two players inked the largest-ever ecommerce deal in the world. Ending weeks of speculation, US retail giant Walmart acquired a controlling stake of 77% in Flipkart for $16 billion, valuing the Bengaluru based company- Flipkart at a jaw-dropping $21 billion.FLIPKART, founded by Sachin Bansal and Binny Bansal in October 2007 in an apartment in Bengaluru’s Koramangala, is significantly dominant in sale of apparel.
Currently Kalyan Krishna Murthy is the CEO of this Bengaluru based company.WALMART, an American multinational retail corporation was founded by Sam Walton in 1962. Currently Walmart has 11 ,718 stores and clubs in 28 countries.
The CEO of Walmart is Doug McMillon. Why it happened?Walmart is known for its grocery stores but its online sales account for a little more than 3% of its business in US.”India is one of the most attractive retail markets in the world, given its size and growth rate,” Walmart’s president and CEO Doug McMillon said in a statement.Due to no other retail presence in the country this acquisition allowed Walmart to jump straight into a small but growing e-commerce market with about 100 million customers.This deal has benefited Walmart in its battle with the global leader Amazon in online retail.Why the merger between Flipkart and Amazon did not happen? Due to the probability of facing severe scrutiny from India’s antitrust regulator, Amazon which had bid for Flipkart as well, didn’t merge as their combined sales would have added up to almost 90% of India’s e-commerce market.Walmart’s stock crashed after the deal was announced:The reason behind this was that Flipkart is not expected to make profit in recent years and the Indian e-commerce market is small by global standards i.e.
100 million customers in a country with about 1.3 billion people.APPRECIATION OF DECISION: “Let @Flipkart be a lesson in seeking ridiculous over-valuation. You’ll end up with your firm being run by the VC,” Mahesh Murthy tweeted early last year. “Congrats to the founders of @Flipkart. My prediction was proved wrong. But happy for you, and happy for the entire ecosystem! And welcome to India @Walmart,” he tweeted.
The deal, experts believe, confirms the potential of the Indian retail market and also acts as a faceoff between Alibaba, Amazon and Walmart, making India capable of global dominance in retail and is expected to be a $200-billion market by 2026.Effect on India consumers and arch rival:Increasing nervousness of online sellers Walmart has a reputation of killing small businesses with ultra-low prices. online sellers on Flipkart fear that Walmart might bring in its own private labels through Flipkart to the Indian consumers, adding to competitive pressures.Formidable ally Even after trying for 4 years, Walmart remained confined to a ‘cash-and-carry’ wholesale business among tough restrictions on foreign investment. Four years later, Walmart broke its joint venture with Bharti for a cash-and-carry business. It is using Flipkart as the arrowhead to have another blow at Indian market. Flipkart did not just get additional funds to fight Amazon, but also armed it with a formidable ally with extensive experience in retailing, logistics and supply chain management, after Walmart’s investment.
Economic boost The battle between Amazon and Flipkart for leadership in the Indian market will grow more intense after Walmart buying into Flipkart. Amazon has committed investments to the tune of $5 billion for its operations in India. In a recent investor call, Amazon CFO Brian Olsavsky said the company would continue to invest in India as it saw great progress with both sellers and customers here. The war between Flipkart and Amazon will not only lead to creation of vast infrastructure of supply chain but also a large number of jobs opportunity. Low prices, more variety Walmart, the American giant with huge experience in a first-world economy, will modernize Indian retail with low prices and a vast variety of consumer goods.
Amazon’s fight-back will ensure that prices remain competitive.Good deal for other investors?Venture capital firms Accel and Tiger Global invested more than eight years ago, when Flipkart was valued at just $50m but they have now exited with 400 times than what they had invested.The SoftBank Vision Fund led by Masayoshi Son was a big receiver of the deal – it had invested $2.5bn in August 2017 for a 20% stake and it exited with $4bn.Flipkart co-founder Binny Bansal, Microsoft, eBay and China’s Tencent, who invested a total of $1.
4bn in April 2017 retained their stakes.Mergers & Acquisitions related to Flipkart:It had bought online apparel retailer Myntra in a deal pegged by sources at about $300 million in 2014, and another retailer Jabong for $70 million in 2016. Last year, Flipkart offered to buy rival Snapdeal but the deal fell through. SoftBank, Flipkart’s largest investor, also has a stake in Snapdeal, as does China’s Alibaba Group Holding Ltd.
Flipkart bought payment startup PhonePe in 2016. In exchange for an equity stake in Flipkart, eBay agreed to make a $500 million cash investment in and sell its eBay in business to Flipkart in 2017. ConclusionMergers and Acquisitions are by definition legal ways by which a company takes over or unifies its assets and liabilities with that of one or more other companies. These are of three kinds- horizontal, vertical and market-extensional. Mergers and acquisitions are different from consolidation and conglomerates.
The reasons for mergers range from cost reduction and efficiency to management problems and quality to capturing larger market share. M&A has an impact not only on the shareholders but also on the customers and hence the market and economy. The case studies of Flipkart and Walmart acquisition and JP Morgan and Chase Manhattan merger bring about the differences between need of unification of assets and desire to unify assets.