2. Introduction
All our daily newspapers are filled with cases of mergers, acquisitions, spin-
offs, tender offers & other forms of corporate restructuring. In this context,
it would be essential for us to understand what corporate restructuring and
mergers and acquisitions are all about.
With recession taking toll of many Indian businesses and the feeling of
insecurity surging over our businessmen, it is not surprising when we hear
about the immense numbers of corporate restructurings taking place,
especially in the last couple of years. Several companies have been taken
over and several have undergone internal restructuring, whereas certain
companies in the same field of business have found it beneficial to merge
together into one company.
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3. What is Merger & Acquisitions?
MERGER ACQUISITION
Merger is defined as combination of two or more Acquisition in general sense is acquiring the
companies into a single company where one survives ownership in the property. In the context of business
and the others lose their corporate existence. The combinations, an acquisition is the purchase by one
survivor acquires all the assets as well as liabilities of company of a controlling interest in the share capital
the merged company or companies. Generally, the of another existing company.
surviving company is the buyer, which retains its
identity, and the extinguished company is the Methods of Acquisition:
seller. An acquisition may be affected by:
Merger is also defined as amalgamation. Merger is the a) Agreement with the persons holding majority
fusion of two or more existing companies. All assets, interest in the company management like members of
liabilities and the stock of one company stand the board or major shareholders commanding
transferred to Transferee Company in consideration majority of voting power;
of payment in the form of: b) Purchase of shares in open market;
c) To make takeover offer to the general body of
•Equity shares in the transferee company, shareholders;
•Debentures in the transferee company, d) Purchase of new shares by private treaty;
•Cash, or e) Acquisition of share capital through the following
•A mix of the above modes. forms of considerations viz. Means of cash, issuance
of loan capital, or
insurance of share capital.
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4. A MERGER happens when two firms, often about same size, agree to go forward as a new single company
rather than remain separately owned & operated by pooling all their resources together, to create a sustainable
competitive advantage. For example, both Daimler-Benz & Chrysler ceased to exist when two firms merged,
and a new company ’Daimler-Chrysler’ was created.
When a Company takes over another one & clearly becomes the new owner ,the purchase is called
‘ACQUISITION’. Unlike mergers, acquisitions can sometimes be unfriendly. i.e., when a firm tries to takeover
another by adopting hostile measures.
STRUCTURE 1 STRUCTURE 2
A, B and C = Amalgamating Companies: Cease to exist
A B A
A
D = Amalgamated Company: may or may not have
existed before Merger
A Transfer assets and liabilities
B All assets and liabilities of A, B and C transferred to D
Shareholders in A,B and C get shares in D.
A = Amalgamating Company: Ceases to Exist
B = Amalgamated Company
B receives all of A’s assets and liabilities
B
B D
D
Shareholders of A receive shares in B and
maybe other benefits like debentures, cash
STRUCTURE 3 C
C
Company A
Transfers undertaking Y
X Y
X Y Y
Y
Company B
Shareholders ofof A Issues shares
Shareholders A
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5. Mergers & Acquisitions –An Overview(RECAP)
Mergers and Acquisitions M&A ,have become very popular strategy all over the world in last 3 decades.
The value M &A WORLDWIDE increased from $464 Billion in 1990 to $3.4 trillion in 1999-2000, followed by
sharp decline during 2001 & 2002.It has again shown improvement from 2003 onwards & has crossed $320
trillions till 2011-12.
India born Laxmi Nivas Mittal has taken over Arcelor in Europe , to form a largest Steel making Company in
Europe-”Arcelor-Mittal.”(117 Mtons/Year-Global) .
Tata Steel-Corus(UK) Acquisition by Tata Steel for $12 Billion is very significant and a landmark for the
Indian Corporate World. (28 Mtons/Annum-2006)
M&A means and includes
M&A means and includes
Acquisitions Org. Restruct.
Own, Restruct.
Mergers Divestitures Redesign
Going Private
Purchase Of Unit Sell Offs Performance
Leveraged
Take Overs Demergers Enhancement
Buy Outs
Alliances Programmes
M&A is all about…..
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6. The Synergy Matrix
Managerial Synergy Financial Synergy
Improve management or
replace inefficient one
Redeploy capital
Increase ROI
Operating Synergy
Company-specific Risk Scale Economies
Cost-of-capital reduction Improve margins
Market Valuation
Release “value”
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7. Types of Mergers
Horizontal mergers:
A horizontal merger involves two firms operating and competing in
the same kind of business activity.
Textiles firm merges raw materials firm.
- Example: Exxon - Mobil
Vertical mergers:
Vertical mergers occur between firms in different stages of
production operation.
- Example: Helene Curtis and Unilever
Conglomerate Mergers:
- Conglomerate mergers involve firms engaged in unrelated types
of business activity
- Example: General Electric buying NBC television
Concentric Mergers
- Based on specific management functions where as the
conglomerate mergers are based on general management
functions
- Example: Citigroup (principally a bank) buying
Salomon Smith Barney (an investment banker/stock
brokerage operation
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8. Purpose of Mergers & Acquisitions
Purpose of Mergers & Acquisitions
The purpose for an offeror company for acquiring another company shall be reflected in the corporate
objectives. It has to decide the specific objectives to be achieved through acquisition. The basic purpose of
merger or business combination is to achieve faster growth of the corporate business. Faster growth may
be had through product improvement and competitive position. Other possible purposes for acquisition are
short listed below: -
(1) Procurement of supplies:
1. To safeguard the source of supplies of raw materials or intermediary product;
2. To obtain economies of purchase in the form of discount, savings in transportation costs, overhead costs in buying
department, etc.;
3. To share the benefits of suppliers economies by standardizing the materials.
(2) Revamping production facilities:
1. To achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and
resources;
2. To standardize product specifications, improvement of quality of product, expanding
3. Market and aiming at consumers satisfaction through strengthening after sale Services;
4. To obtain improved production technology and know-how from the offered company
5. To reduce cost, improve quality and produce competitive products to retain and Improve market share.
(3) Market expansion and strategy:
1. To eliminate competition and protect existing market;
2. To obtain a new market outlets in possession of the offeree;
3. To obtain new product for diversification or substitution of existing products and to enhance the product range;
4. Strengthening retain outlets and sale the goods to rationalize distribution;
5. To reduce advertising cost and improve public image of the offeree company;
6. Strategic control of patents and copyrights.
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9. Continue….
(4) Financial strength:
1. To improve liquidity and have direct access to cash resource;
2. To dispose of surplus and outdated assets for cash out of combined enterprise;
3. To enhance gearing capacity, borrow on better strength and the greater assets backing;
4. To avail tax benefits;
5. To improve EPS (Earning Per Share).
(5) General gains:
1. To improve its own image and attract superior managerial talents to manage its affairs;
2. To offer better satisfaction to consumers or users of the product.
(6) Own developmental plans:
The purpose of acquisition is backed by the offeror company’s own developmental plans. A company thinks in terms of
acquiring the other company only
when it has arrived at its own development plan to expand its operation having examined its own internal strength where it
might not have any problem of taxation, accounting, valuation, etc. But might feel resource constraints with limitations of
funds and lack of skill managerial personnel’s. It has to aim at suitable combination where it could have opportunities to
supplement its funds by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its
market position.
(7) Strategic purpose:
The Acquirer Company view the merger to achieve strategicobjectives through alternative type of combinations which may
be horizontal, vertical, product expansion, market extensional or otherspecified unrelated objectives depending upon the
corporate strategies. 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. The combining corporate aim at circular combinations
by pursuing this objective.
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10. The M & A Process
1) Develop a strategic plan for the business.(Business Plan)
2) Develop an acquisition plan related to the strategic plan.( Acquisition Plan)
3) Search companies for acquisitions.(Search)
4) Screen and prioritize potential companies.(Screen)
5) Initiate contact with target.
6) Refine valuation, structure the deal and develop financial plan.( Negotiation)
7) Develop plan for integrating the acquired business. (Integration Plan)
8) Obtain all necessary approvals and implement closing.
9) Implement post closing integration.
10) Conduct a post closing evaluation.
The M&A Process
Start here
Start here
to Maximize
to Maximize …… And not here.
And not here.
Merger benefits.
Merger benefits. The Getting Ready
Process
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11. Acquisitions overcometo reduce the competitive integration of firms
Differing financial and controlbarriers to entry
costly
Acquisition intendedBarriers systems can make
Costly debtmayway fail move into toeconomically outflows.outcomes
Firms mayrelated“start-ups” to assess allows of
Closely create onerous businesses when firm
Quick to to Entry,
Managers maylacks experience restrict cash value of
which can use acquisitionsburden on its risk
Buying establishedobjectively reduces
make to businesses
Reasons for balance entry in a more
dependence
the
difficult of the industry timely fashion in
market on a single or a few products or of small seed
currently acquisition depth
and of dozens
Example: AgriBioTech’sfirm’s acquisition strategy
unattractive British Petroleum’s DEC’s semiconductor division
Example:venturesacquisition of acquisition of
start-up
achieved through the Food’s acquisition of
Example:Intel’s
Problems in
Example: Kraft
industry
M&A “Winners Curse” bidhave expertise required
Example: Ford and JaguarFortis’ acquisition firm
Acquirer doesn’t causes acquirer to overpay for
firms Example: Watson Pharmaceuticals’to manage unrelated
markets
Example: Belgian-Dutch
Example:Amoco Banker’s Insurance of mySimon
U.S. Marks CNET’s increase estimate of of Brooks Brothers
Boca Burger can acquisition
Example:
businesses General Spencer’s acquisition of NBC
acquisition and Electric’s
Justifying acquisitionsTheraTech acquisition expected benefits
Example:
of American of Group
Achieving Success
Example: Quaker Oats to selling businesses and refocusing
Example: GE--prior and Snapple
Increased Integration
market power difficulties
Overcome Inadequate
entry barriers evaluation of target
Cost of new Large or
product development extraordinary debt
Increased speed Inability to
to market M&A achieve synergy
Lower risk Too much
compared to developing new diversification
products
Increased Managers overly
diversification focused on acquisitions
Avoid excessive
competition Too large
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12. Strategic approach To Mergers and
Acquisitions
Present Situation Strategy
• Growing steadily but in a mature market with limited Acquire a company in a younger market with higher growth
growth rate
• Operating at maximum productive capacity Acquire a company making similar products operating
substantially below capacity
• Under-utilizing management resources Acquire a company into which the talents can be extended
• Marketing an incomplete product range , or having the Acquire a company with product range which is
potential to sell other products or services to your complementary
existing customers
• Lacking key clients in a targeted sector Acquire a company with right customer profile
• Need to increase market share Acquire an important competitor
• Need to widen capability Acquire a company with key talents and/or technology
• Need more control of suppliers or customers Acquire a company which is, or which gives access to a
significant customer or supplier
• Preparing for floatation but need to improve balance Acquire a company with the right customer profile
sheet
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13. Takeover Strategies and Defenses
Kinds of takeovers:
Negotiated or Friendly Takeover
The existing management of a company decides to give away the control of the company
to another group on terms and conditions mutually agreed upon by both the parties.
Open market or Hostile Takeover
A group acquires shares of a company from the open market in order to take control of
the company
Eg: Autoriders’ Hostile Takeover Bid for Saurashtra Cement
Bail-out Takeover
When a financially sick company is taken over by a profit earning company in order to
bail out the former ,it is called a bail-out takeover.
• Hostile Takeover Strategies
- Tender Offer
General offer made publicly and directly to a firm’s shareholders to buy their stock at a price well above
the current market price.
- Street Sweep
The acquirer accumulates large amounts of the stocks in the target company before making the open
offer
- Bear Hug
The acquirer tries to put pressure on the management of the target firm by threatening to make an open
offer
- Strategic Alliance
An acquirer offers a partnership rather than a buyout of the target firm.
- Brand Power
The acquiring firm enters into an alliance with other powerful brands to displace the competitor’s brand.
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14. Effects of Takeovers
Effects on the Acquirer Company
Effects on the Target company
Effects on the Shareholders of the Target Company
Effects on the Shareholders of Acquiring Company
Defenses against Takeovers
Golden Parachutes
Poison Put
Anti-takeover Amendments
Super majority amendments
Fair price amendments
Classified boards
Authorization of preferred stock
Poison Pill Defense
Targeted Share Repurchase and Standstill Agreements
Other Takeover Defences
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15. What is an Acquisition?
A fundamental characteristic of merger is that the acquiring company takes over the
ownership of other companies and combines their operations with its own operations.
An acquisition may be defined as an act of acquiring effective control by one company over
the assets or management of another company without any combination of companies.
• Attributes of Effective Acquisitions
+
Friendly deals make integration go more smoothly
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17. Legal Procedure
Sec 391 – 394 of Indian Companies Act covers M & A.
Examination of object clause
Approval from the Board
Intimation to share holders and creditors.
Approval from share holders and creditors.- 75% of SH
and creditors to approve.
Application to National Company Law Tribunal (NCLJ)
Intimation to SEs
Petition to NCLT for approval
Filing order with ROC
Transfer of assets and Liabilities
Issuance of shares/cash
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19. ABOUT THE DEAL
TATA Acquired CORUS on 2nd April 2007 which is 4 times larger than its size.
The deal price was $ 12 Billion.
TATA Steel,the winner of the auction for CORUS declares a bid of 608 Pence per share.
In 2005 when the deal was started the price per share was 455 pence.
TATA Surpassed the final bid from Brazilian steel maker ‘COMPANHIA SIDERURGICA NACIONAL’
(CSN) of 603 pence per share.
The combined entity has become the world’s fifth largest steelmaker after the deal.
For this deal TATA has finance only 4 Billion $ from internal company resources.
TATA Have secured funding commitments from its advisors.
These advisors were Deutshe bank, ABN Amro and Standard Chartered.
IMPORTANCE OF DEAL
FOR TATA FOR CORUS
The initial motive behind the deal was not CORUS To extend its Global reach through TATA.
revenue size but rather its market value. To get access to Indian Ore reserves, as well as virgin
To compete on global scale because then TATA was just market for steel.
at 56th rank in steel production. To get access to low cost materials.
CORUS holds a number of Patents and R & D facility. Total Debt of Corus was GBP 1.6bn
Acquiring Corus will give Tata access to European Saturated market of Europe.
customers of steel. Better facilities and lower cost of production
Acquisition cost will be lower then setting up new green Employee cost was 15 % (TATA- 9%)
field plants and marketing channel. Profit margin was 3.4% (TATA- 17%)
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21. Overview
Ford, a leading automaker and one of the largest MNC in the global automobile industry.
Ford acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5 billion
Ford bought Land Rover in 2000 for US$ 2.7 billion from BMW
Over the years, the operations of both Jaguar and Land Rover were fully integrated
Ford reported losses of US$ 12.7 billion in the year 2006
Ford conducted strategic reviews on the two brands and in June 2007 announced that it was
considering selling JLR
Ford was concerned more about the interest of the workers employed with JLR than the price
JLR’s labour union were against selling to private equity firms to be assure of job security
On January 03,2008,Ford announced that it had chosen Tata Motors for the JLR deal and had
entered into focused negotiations with the company.
On March 26,2008, Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition
of the businesses of JLR.
Tata Motors-Rationale Of Acquiring JLR
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22. Problems & Issues of Tata-JLR Merger
Problems with deal Financial Issues
Sales of JLR declined by 11.4% during the 2nd Tata Motors raised a bridge loan of US S$ 3
quarter ending Sep.2008 billion through a syndicate of banks
Tata motors had to pump in funds to keep JLR on The loan was raised through Tata Motors UK, a
the move special purpose vehicle and a 100% subsidiary
By the end of Nov.2008,198 employees opted for of Tata Motors
voluntary retirement and 400 more decide to The interest on the bridge loan was linked to
leave by Jan 2009 LIBOR(London Inter Bank Offer Rate)
With not much of cash generation internally, Tata also proposed to raise around US 500 to
additional investments of funds would only add 600 million through an international issue
to the debt and interest burden of the company
In early Jan 2009,JLR announced 450 jobs cut
Announced that managers would not receive any
bonuses in 2009 while salary raises would be
deferred till Oct 2009
For the quarter ending Dec2008,the sales
volumes of JLR decreased by 35.2% to 49,186
Total car sales in the UK in the year 2009 would
be at 1.78 million as against 2.4 million in 2008
By the end of 2008,retail vehicle sales were
reported at 10.8 million-around 2 million lower
than the sales reported in 2007
Consumers were delaying the purchase of new
vehicles due to lack of consumer loans
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24. Overview
Biggest merger in the history of Consumer goods
P&G acquired Gillette for $57b to become the world’s largest consumer goods company
Annual Sales of the combined entity:$60.7b
After purchase of Gillette P&G will have $21b brands with market cap of $200b
P&G paid .975$/share(20% premium),later buyback of shares worth $18-22b over 12-18
months
Merging companies: similarity in Corporate history
Merger based on a different model where innovation was the focus rather than the scale
Regulatory concerns: Product overlaps
Consumer goods after 1980s
Why Gillette?
P&G strength: Women’s personal care products
Gillette strength: Men’s grooming category
Complementary in strength cultures and vision to create potential for superior sustainable
growth
Gillette stock climbed 50% since 2003,profits jumped on premium products
Acquisition added about 20% to P&G sales, long term sales growth estimate to 5-7% a year
Operating margin expected to grow by 25 % by 2015 from 19% in 2003
The companies expected cost savings of $14-16 bn from combining back-room operations and
new growth opportunities.
more resources to enable intensive collaborative supply chain initiatives in a more cost-
effective way.
merger would also bring down the advertising and media costs owing to greater bargaining
power
Opportunities in developing markets: Gillette would give exposure to P&G in emerging
economies like India and Brazil, while P&G would distribute Gillette products in China
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25. Integration issues
The merger would result in around 6,000 job cuts, equivalent to 4% of the two
companies' combined workforce of 140,000. Most of the downsizing will take place to
eliminate management overlaps and consolidation of business support functions.
Cultural problems absence because of geographical proximity
P&G is considered a promote-from-within company, and already had a lot of executive
talent at the top. Therefore, absorbing Gillette's management to their satisfaction could
be difficult
P&G's ability to handle this massive cultural assimilation would decide the success or
failure of this acquisition.
Overlaps of some brands
Future Outlook
Pressure for competitors in the industry
competitors could launch new products or strengthen their supply chain relationships
during this time to gain an edge
P&G-Gillette combination could be a transformative deal for the industry because of
Gillette's growth potential. Analyst forecasted that this deal could lead to further
consolidation in the industry
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27. • January 2006 : Mittal Steel offers the shareholders of Arcelor to create the world's first 100 million tonne plus steel producer.
• The deal valued at $22.7 billion offer to Arcelor’s shareholders
• The deal was split between Mittal Shares (75 percent) and cash (25 percent)
• But soon the deal landed into controversy
• An Attractive Target:
Arcelor had 71% pre merger revenue share from Europe while Mittal had only 34%
While in North America The revenue share for Arcelor was only 9% but Mittal had 42%
So they had complementary industrial and market footprint
Arcelor Management –
• The management was extremely hostile to Mittal Steel’s bid
• The CEO of Arcelor dismissed Mittal Steel as a “company of Indians”
European governments –
•The French, Spanish and the government of Luxembourg was against the deal
• The French opposition was initially very fierce
• But It was criticized in the British, American and Indian media as double standards and economic nationalism in
Europe
Deal finally clinched when the shareholders of Arcelor agreed to Mittal Steel’s offer – In June 2006
Mittal raised its valuation of Arcelor to $32.9 billion.
The Mittal family holds 43 percent of the combined group.
The combined company holds 10 percent of the global market for steel.
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28. Major Acquisitions
Year Target Buyer Value ($ bn)
2006 Arcelor Mittal Steel 31
2001 NKK Corp Kawasaki Steel 14.1
2004 LMM Holdings Ispat Intl 13.3
2006 Corus TATA 12.0
1997 Krupp AG Thyssen 8.0
2005 Dofasco Arcelor 5.2
2005 Intl Steel Mittal Steel 4.8
2010 S ($4.26 mn, up from 32.5% to
Agro Dutch Industries Penta Homes
57.7%)
2010 Encore Cement and Addictive ACC A
2010 Orissa Cement Dalmia Cement S ($37.66mn, 45.4%)
2010 Brook Crompton Greaves Crompton Greaves M
2010 Havells India DPSC A ($25.53mn)
2010 Srei-led Consortium 20.25 MW hydro power assets S ($36.6mn, 57%)
2010 Malanpur Captive Power (subsidiary of
Greenko Group Plc A ($32.98mn, 57%)
crompton greaves)
2010 Avantha Power and Infrastructure Almondz Insurance Brokers S ($10.94mn, 59%)
2010 Almondz Global Securities IDFC – SSKI Securities S (51%)
2010 Infrastructure Development Finance
Indian Infoline Investment services S (from 80% to 100%)
Company(IDFC)
2010 Indian Infoline (Orient Global Tamarind
Anagram Capital S ($72mn, 22%)
Fund)
2010 Edelweiss Capital Mathew Easow Research Securities A ($34.89mn)
2010 Vista Vyapaar Solvex, General Foods, Param Industriess S ($0.84mn,69.2%)
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29. CHECKLIST - MERGERS AND CORPORATE CULTURE
Develop a strategy for cultural integration
Analyse existing cultures - identify cultural barriers, differences in communication and
other potential problems.
Decide which role the new culture shall play in the merged organization.
Establish ‘bridges’ between both companies.
Establish a basis and mechanisms for the new culture.
Be patient People take time to be acquainted to a new cultural reality.
Conclusion
Mergers and Acquisitions plays important role in corporate restructuring and development
of country. In India it is also playing same role. But some times it represent market and
financial power. And after liberalization it increased due to liberal government policies
Mergers & Acquisitions are a significant form of business strategy today for Corporates.
The two main objectives behind any M&A Transaction, for corporates today is :
• to improve Revenues and Profitability
• Faster growth in scale and quicker access to market
• Competition in Globalized Market
The most important factors according to corporate India that contribute to the success of
an M&A Transaction are :
Timing
Intrinsic Fit
Personnel
Advisors on legal, policy and financial strategies
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30. Presented By:
Mahendra MM Soni
Mahendra Soni Mahavir MM Kothari
Mahavir Kothari Mahavir CC Jain
Mahavir Jain
WRO 0310760
WRO 0310760 WRO 0278768
WRO 0278768 WRO 0312210
WRO 0312210
Mahendra.K.Soni@Icai.Org
Mahendra.K.Soni@Icai.Org Mahavirkothari89@gmail.com
Mahavirkothari89@gmail.com mahavirjain333@gmail.com
mahavirjain333@gmail.com
Poonam P P Chaturvedi
Poonam Chaturvedi Divya RR Anchan
Divya Anchan Beena SS Thomas
Beena Thomas
WRO 0279480
WRO 0279480 WRO 0314688
WRO 0314688 WRO 0261274
WRO 0261274
poonam.chaturvedi5@gmail.com
poonam.chaturvedi5@gmail.com divya_anchan88@yahoo.co.in
divya_anchan88@yahoo.co.in beenahn@rediffmail.com
beenahn@rediffmail.com
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