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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

total 100 1003/28/2013

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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