The document discusses cross-border mergers and acquisitions (M&A). It defines a cross-border merger as combining the assets and operations of two companies from different countries into a new legal entity. Cross-border M&A has increased significantly since the mid-1990s due to financial liberalization policies. Developed countries saw the value of cross-border M&A grow 20% annually between 1987-1999. More recently, India and China have become increasingly involved in cross-border transactions. The document also outlines trends, patterns, and procedures related to cross-border M&A deals.
2. What is cross-Boarder Merger
• A cross-border merger is a transaction in which the
assets and operation of two firms belonging to or
registered in two different countries are combined to
establish a new legal entity.
• In a cross-border acquisition, the control of assets and
operations is transferred from a local to a foreign
company, with the former becoming an affiliate of the
latter.
3. Trends and Patterns
• Considerable increase in cross border deals since the
mid 90s and the trend still continues
• A result of financial liberalization policies, government
policies and regional agreements
• Since 1980, total cross border M&A transactions
worldwide have seen a growth at an average of 42%.
4. Developed v/s Developing
• Between the years 1987 to 1999, the value of sales and
purchase in cross border M&A in developed countries
has grown by 20% per annum.
• Until 1996 in the case of Asian region the cross border
M&A were lower mainly due to the regulations prevailed
at that point of time.
• Late 1990s witnessed increase owing to the drastic shift
in policies to attract FDI.
5. World Investment Report
In the case of Asian continent bulk of the purchases are
made by two countries namely Japan (31 percent) and
Singapore (16percent)
Japan and Korea tops the list of sales
China is the fourth dealer both in terms of purchase
(6percent) as well as sales (9 percent).
Both India and china started with a very low pace of
transactions during the latter part of the 1980s and
picked up during the 1990s.
Recently (2000 onwards) both of these countries are
involving In cross-border transactions in an
unprecedented manner. India ranks as The 6th largest
purchaser and 5th seller in the Asian region; whereas
China was the 3rd largest purchaser as well as seller .
6. Why??
• New Ways of Raising Capital
Strengthening of environment of corporate capital
raising
Direct financing through issue of stocks and corporate
debt has also gained popularity.
Venture capital
Use of stocks for financial purchases
7. Trend towards Services and Away from
Manufacturing
• In 2011, among the cross border M&A activities that took
place, only 35% involved manufacturing whereas 65%
involved services
• Pharmaceutical, telecom, banking and life insurance
8. Reasons for Cross Border Deals
Technology Seeking M&A:
To develop the Technology
The technology is transferred to the acquiring firm
Market Seeking M&A:
To expand Market
Acquirer needs to pay fixed integration cost to the target firm
9. Intensity of Cross Border Mergers
Depends on 2 factors;
All stock deal:
Low intensity
Currency conversion will be lesser
Longer period of time
Cash stock deal:
Intensity based on the percentage of the cash involved
Mixed effect on the currency market
10. Inbound M&A
• Inbound M&A are mergers or acquisitions where a
foreign company merges with or acquiresan inbound
company
• Such actions are commonly voluntary and involve stock
swap or cash payment to the target.
• Designated Forex account
11. Procedures involved in Inbound M&A
Before the Transaction:
• Apply for opening DFA
• use of the proceeds, amount of foreign currency to be
received, approval of the transaction from MOFCOM or its local
counterpart need to be submitted.
After the Transaction:
• Should apply to SAFE to deposit the foreign currency into the
Designated Forex Account
• Application statement, share transfer agreement, most recent audited
report of the target, deposit notice issued by the bank and capital
verification report of the target
12. Outbound M&A
Outbound M&A means, the Companies which has origin in India
and making and initiative in investments in the foreign based
companies.
Application Procedure:
• remittance exceeds the amount of $30,000, needs to acquire a
Tax Certificate
• agreements or other documents setting forth the rights and
obligations of both parties,
• the invoices or other documents of the foreign organization
requesting payment,
• the tax payment certificate or approval document for tax
exemption
13. Acquirer Company Industry
Targeted Company Deal Value (In
Billions)
Tata Steel Corus () $12.2 Steel
Hindalco Industries Novelis Inc () $6 Aluminium
Oil & Natural Gas Imperial Energy PLC () $2.8 Oil & Gas
Corp(ONGC) Videsh Ltd
Tata Motors Ltd Jaguar & Land $2.3 Automotive
Rover Operations ()
Suzlon Energy Ltd RE Power $1.7 Power & Energy
()
Essar Steel Holdings Algoma Steel Inc () $1.58 Steel
Limited
United Spirits Whyte & Mackay () $1.11 Breweries &
Distilleries
Tata Power PT Kaltim Prima Coal; PT $1.10 Power & Energy
Arutmin (30% Stake - )
GMR Infrastructure Ltd InterGen NV (50% - Stake ) $ 1,10 Power & Energy
Tata Chemicals Limited General Chemical () $1 Plastic & Chemicals