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CASE STUDY
on
RIL-RPL MERGER
and
TATA-JAGUAR ACQUISITION
MERGER & ACQUISITION
SUBMITTED BY:
1. MISTRY OJAL (117500592001)
2. MEHTA SHRADDHA (117500592004)
3. KABRA KETAN (117500592039)
4. JASANI PAYAL (117500592042)
5. MEHTA NIKITA (117500592046)
SUBMITTED TO:
MS. POOJA PATEL
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Agenda
Concept of Merger
A case of merger of RIL & RPL
Concept of Acquisition
A case of acquisition of J aguar & Land Rover by TataMotors
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Concept of Merger
A merger is a strategywheretwo companies agreeto combine theiroperations. Once merger happens, one company survives and theotherloses its corporateidentity
Merger through absorption:
Absorption is a combination of two or more companies into anexisting company. All companies except one lose their identity in
sucha merger
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Cont
Types o fmergers
HORIZONTAL VERTICALCONGLOMERATE
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Glance at both entities:RelianceIndustries Limited(RIL)
India's largest private sector company on all major financial
parameters It is the first private sector company from India to feature in the
Fortune Global 500 list of 'World's Largest Corporations' and ranks103rdamongsttheworld's Top 200companies in terms ofprofits
ReliancePetroleum Limited (RPL)
It is a subsidiaryofReliance IndustriesL imited
With an annual crude processing capacity of 580,000 barrels perstream day (BPSD), RP L will be the sixth largest refinery in theworld
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Merger of RIL and RPLMerger of RIL and RPL
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Cont
On 8th April 2002 the merger received a nod from the directors ofRILanRPL
They have recommended an exchange ratio of one share of RIL forevery11shares ofRP L
Under the proposed terms of themerger, shares ofRPL held byRIL,representing28%ofRPLs equitysharecapital, cancelled
RPL shares held by other RIL associates, representing 14% ofRPLs equity share capital, exchanged into RIL shares, andconstituted4.7% of the fully diluted equity share capital of RIL, witha value of over Rs. 2,100 crores (US$ 0.43 billion) at prevalentmarketprices
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Synergy o f Merger
Sales Tax benefit
TaxshieldBenefit
Strong Balance Sheet of thecombinedentity
RiskDiversification
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Impact of Merger (2002)
largestlandmark in Indiancorporatehistory
Turnover:Rs 58,000crore (US$ 13.84bn)
AnnualizedNetP rofit:Rs 4,000crore (US$ 954mn)
Total Sales:3 percentof India's GDP
Tax Contribution: 10 per cent of total indirect tax revenues of theCentral government
Total Exports: 5 percentof India's totalexports
Cont...
In April 2002,boardofRIL approved a proposal tomergeRP L
The company's share price as also the benchmark index Sensexreactednegatively
RIL shares had dropped 2.85per centtoRs 312.95
RIL had stated that the deal would lead to a 32 per cent increase inRIL's equity
But it was notsuccessful attempt,whichresults intomerger of RIL andRPL in2009again
Merger of RIL-RPL (2008-2009)
SchemeScheme ofof MergerMerger::
Present RPL was incorporated in October 24, 2005 to set up thesecondmega refinerycomplex
The merger was expected to happen owing to the strategic fit and thechangesin the global scenario
To enjoy Economies of Scale in production and refinery ofpetrochemicals
To minimizethecostof capital
To capitalize thecashflowof RPL
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The merger resultedin the creationofa petrochemicalbehemothwhichencompassedtheentirevaluechain in the businessof petroleum
The merger created a new entity having combined market value ofaboutRs.233,384crores
After the merger, became one of the worlds largest refineries havinglargestcapacityat a single location
Becamethe fifthlargestpolypropylene manufacturer
Cont...Two firms function as separate entities from the accounting point ofview
The taxbenefits available to RIL as an Export Oriented Unit & to RPLasa Special EconomicZone
GaveRIL greater flexibilityin operational planning
RPL had its IPO in April2006where RIL had 75%stake
In November 2007 only it became almost clear that RIL might take astepofmergingRPL
Cont...
1.Synergy
Combined entity can often reduce the fixed costs and otheroperatingcosts
Thenatureof theexisting refineryandthe newrefineryis same
So, the improved capacity and the complexity would give RIL the
necessaryreductionin the costs ofoperations
2.Increased revenueor marketshare
The merger would increase its market power by capturingincreasedmarketsharetosetprices
Reasons for MergerCont...Cont...
3. Economyof scale
Merged entity would be the worlds largest refining capacity at asinglelocation
4.Taxation
Taxbenefits is anothermajor incentive
Butheremerger will betaxneutral
Boththeentitieswillcontinueto enjoy the same tax benefits
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Swap ratio
1:16
Forevery 16shares ofRPL, 1 share ofRIL issuedofrs 10.
CRISIL gave ratingof AAA toRIL share
4.4% increase in equity base from Rs 1,574 crore shares to Rs1,643crore
Resultedin the fall inthepromoterholdingby2%from49% to47%
equitywill bedilutedduetothemerger totheextentof2. %
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Pr om ot er s No n p ro mo ter s
Stake% 75.39 24.62
No of shares 339.21 110.79
No of new shares
as per swap ratio
21.20 6.92
Particulars Pre
merger
Post
merger
Promoters' shares 49 46
Held by RIL Subsidiaries 6 5.7
Banks and FIs 6.5 6.9
MF 2.5 2.7
FIIs 15.5 15.1
Depository receipts 3.7 3.6
Public 16.7 19
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Post merger results
TransformedRIL tobeamongworlds50mostprofitable companies
gainedsignificantlyfromhigher financialstrengthand flexibility
Produced 1.24millionbarrels ofoil a day
Helped the combined entity to save on income tax and dividenddistributiontax
createdhugemarketvalueofa whoppingRs 2,33,000cr.
Increased the cost efficiency as merger brought down the costs ofInter-company transfers & operational costs which further lead toimprovingthe financialefficiency
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ACQUISITION Acquisition refers to a situation where one firm acquires another and the
later ceases to exist
An acquisition occurs when one company takes controlling, interest in
another firm or its legal subsidiary or selected assets of another firm
A firm that attempts to acquire or merge with another company is called an
acquiringcompany
A targetcompanyis a firm that is being solicited bytheacquiring company
The assets ofthe dissolved firm would be owned bytheacquiring firm
The shareholders of the dissolved firmare paid either cash orgiven shares
in acquiring company
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A Bird view
Location: Mumbai, India (HQ)
Founded: J R D Tata in1945
Competitors: Maruti, M&M,
AshokLeyland
Brandnames: NANO, Starbus
CEO: Ratan Tata
Location: Dearborn,Michigan
Founded: 1903byHenryFord
Competitors: General Motors,
Toyota
Brand names: Volvo, Mazda,
J aguar and LandRover
CEO: AlanMulally3/28/2013 22
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Why Ford wanted to sell ?
J aguar had not made any profit for ford, so they started calling
J aguar asdog
Even though LR made 18% profit, nevertheless it is not what ford
wanted
Bringing down production costs and turning around the company
successfullywas the challenge- a testthatFordfailed
Fordmadetheheaviest loss in 2006 i.e. $12.6 billion in its 103-year
history
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12thJune2007
Announcement from Ford that it plans to sell Land Rover andJ aguar
August2007
Major bidders were identified namely; Tata Motors, M&M, Ceribruscapital Management, TPG Capital,
Apollo Management
3rdJan2008
Ford announced Tatas as the preferred bidders
26thMarch2008
Ford agreed to sell its J aguar Land Rover operations to TataMotors
2ndJune2008
The acquisition was complete
The Deal Process
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How the deal was finances?
$ 2.3billionpaid toford
$ 0.7billion
towardsWC
$ 3 billionbridgeloan
SPV 1: TMLHoldingPte Ltd.
SPV 2 : J aguar LandRover Ltd.
TaMo raised $ 3 billion bridge loan from C iti
groupand J P Morgan fora period of15 months
$ 2.3 billion was paid directly to Ford to acquire
fullownershipof J aguar &LandRover
rest$ 0.7billion as an operatingcashforJ LR
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Tata Motors
SPV 1
Singapore
SPV 2
UK
Ford
How TaMo planned to re-finance $ 3billion bridge loan
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Actual re-financing of bridge loan
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Why did TATA go for JLR?
TaMos' long-term strategy included consolidating its position in the
domestic Indian market and expanding its international footprint by
leveraging on in-house capabilities and products and also through
acquisitionsandstrategiccollaborations
TaMo stood to gain on several fronts from the deal - the acquisition
helped the company acquire a global footprint and enter the high-
end premier segment of the global automobile market. After the
acquisition, TaMo owns the world's cheapest car - the Nano, and
luxurycars like the J aguar and LandRover
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Gains to TATA from the deal
1. It got two advance design studios and technology as part of the
deal, which provided access to latest technology andallowedTata
toimprove theircore products in India
2. Tata got an instant recognition and credibility across globe which
otherwisewould havetaken years
3. The costcompetitive advantageas Corus was the main supplier of
automotive high grade steel to J LR and other automobile industry
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Cont..
4. It helpedTaMo diversify its dependence in Indian markets (which
contributed to 90% of TATAs revenue). Along with it TATAs
footprints in South East Asia helped J LR diversify its geographic
dependencefromUS (30% of volumes) andWestern Europe (55%
ofvolumes)
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Was the deal really worth it?
Morgan Stanley reported that J LRs acquisition appeared negative for
TaMo, as it hadincreased the earnings volatility, giventhe difficult economic
conditions in thekey markets ofJ LR includingthe US andE urope
TaMohad toincura huge capital expenditure as itplannedto investanother
US$ 1 billion in J LR in addition to the US$ 2.3 billion it had spent on the
acquisition
TaMo had also incurred huge capital expenditure on the development and
launch of Nano
This, coupled with the downturn in the global automobile industry, was
expected to impactthe profitability of thecompany
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Has the deal made JLR prof itable?
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( millions, unless stated) Year Ended 31 March
2011 2010 C hange
R etail Volumes (000 units) 241 208 16%
Wholesale Volumes (000 units) 244 194 26%
Revenues 9,871 6,527 3,344
EBITDA 1,502 350 1,152
EBITDA % 15.2% 5.4% 9.8%
Net income before tax 1,115 51 1,064
Free Cash Flow 876 (101) 977
Cash 1,028 680 348
Debt (incl. pref, shares) 1,382 3,030 (1,648)
Net debt 354 2,350 (1,996)
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THANK YOU