Indian Institute of Management Bangalore Mergers & Acquisitions Strategy ePGP 2009-10; V Term Elective

Instructor: Srinivasan R (CSP) [Office B-202; Phone: 3143; Email: [email protected]] Introduction Industrial maps across the market economies around the world have been constantly redrawn over the years through mergers, acquisitions, divestments, and other forms of corporate restructuring. The pressure to globalize and internationalize, emergence of economic unions like the EU, NAFTA, maturing markets, and intense competition have given a fresh fillip to M&A activity around the globe. As the Indian industry opens up to the global competition, we are witnessing a spate of mergers, acquisitions, and strategic alliances for corporate restructuring and renewal. Changes in industrial growth patterns being witnessed post-2008 have also contributed to corporate restructuring through consolidation and sell-outs. It is in this context that this course is being offered. The course is multi-dimensional in nature covering the strategic, financial, human and legal aspects of mergers and acquisitions. The course would refrain from dealing with the macro-economic effects of mergers and acquisitions on the industrial structure, but rather restrict its focus on the firm level issues. The course will not also dwell into tools and techniques of valuation and forms of corporate restructuring. The course on Mergers & Acquisitions Strategy seeks to 1. facilitate participants train a sharp focus on corporate growth and renewal strategies (expansion and diversification) through mergers, acquisitions, and divestments; 2. familiarise participants with target selection and appraisal issues; 3. facilitate examination of the working of the market for corporate control; and 4. sensitise the participants on the organisational issues of mergers and acquisitions, including post-merger integration issues

Course structure and Pedagogy The course is structured into three modules 1. Merger motives 2. Target analysis 3. Organizational issues in M&A The course will use rigorous analysis and critical examination of Indian and foreign cases, lectures, and student case reports. The course evaluation will be based on meaningful class participation, case reports and presentations, and an end-term examination. Component Class Participation Case reports End Term Examination Total

Weight 15% 35% 45% 100%

Case reports The purpose of the case report is to enable students integrate the learning from the course with the help of an active M&A context in India. Groups of five students would work on a chosen case. In choosing the case, it is essential that at least one of the firms involved in the M&A

activity should be listed in any of the Indian stock exchanges; and the deal should have been closed not earlier than 2 years from the date of beginning of the course. Case submissions would be phased throughout the entire term. The five stages of the case report submissions include (a) the analysis of the two (or more) firms involved and their respective industry scenarios; (b) analysis of the intent of the merger; (c) the structuring of the deal; (d) the (expected) performance of the merger – the synergies, economies of scale and scope, and/ or market power gained; and (e) your analysis/ evaluation of the case. Specific guidelines including deadlines for submissions and presentations would be communicated at the beginning of the course.

Readings The course pack contains the readings and cases required for the course. The text Takeovers, Restructuring and Corporate Governance by Weston, Mitchell, and Mulherin, 4th Edition (Pearson Education) is issued to you. Apart from the text and required readings, recent research articles are also provided in the course pack for students interested in advanced studies. Students are also urged to keep themselves abreast of the current issues and events through the Internet, newspapers and business magazines.

Indian Institute of Management Bangalore Mergers & Acquisitions Strategy Session-wise Schedule Note: WMM refers to chapters from the textbook supplied, Weston, FJ., Mitchell, ML., and Mulherin, JH. (2004). Takeovers, Restructuring, and Corporate Governance, New Delhi: Pearson Education.

Module one: Merger Motives Required Readings 1. Kaplan, ADH. (1955). The Current Merger Movement Analyzed, Harvard Business Review, May-June, 1955. 2. Ghemavat, P., and Ghadar, F. (2000). The Dubious Logic of Global Megamergers, Harvard Business Review, July-August, 2000. 3. Harding, D., and Rovit, S. (2004). Building Deals on Bedrock, Harvard Business Review, September 2004. 4. Srinivasan R., and Mishra, BP. (2007). Why do firms merge/ acquire: An analysis of strategic intents in recent M&A activity amongst Indian firms, IIMB Management Review, December 2007. Additional (Recent Research) Readings 1. Cloodt, M., Hagedoorn, J., and Van Kranenburg, H. (2006). Mergers and Acquisitions: Their effect on the innovative performance of companies in high-tech industries, Research Policy, Vol.35. 2. Cox, RAK. (2006). Mergers and Acquisitions: A review of the literature, Corporate Ownership & Control, Vol.3, No.3, Spring 2006. 3. Cartwright, S., and Schoenberg, R. (2006). Thirty Years of Mergers and Acquisitions Research: Recent advances and future opportunities, British Journal of Management, Vol.17. 4. Agarwal, M., and Bhattacharjea, A., (2006). Mergers in India: A response to regulatory shocks, Emerging Markets Finance and Trade, Vol.42, No.3, May-June 2006. 5. Öberg, C., and Holtström, J., (2006). Are Mergers and Acquisitions Contagious? Journal of Business Research, Vol.59. Session 1: Overview and Introduction Case: None Reading: Anonymous, (2004). India: Guide to Mergers & Acquisitions, Baker & McKenzie and AZB Partners, 2004 Jensen, MC. (1984). Takeovers: Folklore and Science, Harvard Business Review, November-December 1984. Bower, J. (2001). Not all M&As are Alike – and that matters, Harvard Business Review, March 2001. WMM, Chapter 1 Session 2: Merger motives – expansion and diversification Case: Idea Cellular’s acquisition of Spice Telecom Reading: WMM, Chapters 6, 7, & 8 Questions: Do you think Idea Cellular should go ahead with the acquisition of Spice Communications? What are the motives for Idea to acquire Spice? What are the possible benefits for Idea Cellular due to this acquisition? What would be the role of TMI in the merged entity? Should Idea buy out TMI’s stake as well? How should Idea & Spice handle the revised M&A guidelines issued by DOT?

Session 3: Merger motives – expansion and diversification Case: Hewlett-Packard – Compaq: The merger decision Reading: WMM, Chapters 6, 7, & 8 Questions: As a shareholder of HP, would you have voted positively for the merger? Do you believe that this merger would help or hurt the company’s strategic and financial positions? Session 4: Merger motives – expansion and diversification Case: Hindalco’s acquisition of Novelis: The making of a giant Reading: WMM, Chapters 6, 7, & 8 Questions: Was the merger a good decision? Should it have happened at all? Now that the deal has happened, how much value addition has been done to both the parties involved in the acquisition? How much of Novelis’ turn around can be attributed to Hindalco? How much value has been added to Hindalco by Novelis? Has Hindalco eroded the value to its shareholders? Session 5: Financial motives of mergers Case: Hanson – 1990 Reading: WMM, Chapters 9 & 10 Questions: How would you describe the corporate strategy of Hanson? What kind of firms would Hanson acquire? Do you believe that Hanson itself is an acquisition target? Justify.

Module two: Target analysis Required Readings 1. Rockwell Jr., WF. (1968). How to Acquire a Company, Harvard Business Review, September-October, 1968. 2. Hexter, RM. (1968). How to sell your company, Harvard Business Review, SeptemberOctober, 1968. 3. Rappaport, A. (1979). Strategic Analysis for More Profitable Acquisitions, Harvard Business Review, July-August 1979. 4. Chatterjee, S. (2007). Why is Synergy So Difficult in Mergers of Related Businesses? Strategy & Leadership, Vol.35, No.2. Additional (Recent Research) Readings 1. Shaver, JM. (2006). A Paradox of Synergy: Contagion and capacity effects in mergers and acquisitions, Academy of Management Review, Vol.31, No.4. Session 6: Target Appraisal Case: Tata – VSNL: A strategic acquisition? Reading: WMM, Chapters 9, 10, and 22 Prahlad, CK., and Hamel, G. (1990). The core competence of the corporation, Harvard Business Review, May-June 1990. Questions: Identify the sources of competitive advantage for Tata-VSNL. Critically evaluate VSNL’s strategy of growth through acquisitions. In the light of the competitive scenario described in VSNL’s annual report, describe how VSNL’s strategy will help it develop the required competencies. Session 7: Divestments Case: Saatchi and Saatchi Company, PLC: Corporate Strategy Reading: Taylor, ML. (1988). Historical and Conceptual Perspectives, Chapter 1 in Divesting business units: Making the decision and making it work, Toronto: Lexington Books. WMM, Chapter 11 Questions: Why was Saatchi and Saatchi successful for long? What should Dreyfus do now? How would you evaluate the options in front of Dreyfus and Saatchi and Saatchi? What are the risks with Zenith? Session 8: Takeover defenses Case: Philip Morris Companies and Kraft, Inc. Reading: Fruhan Jr., WE., (1988). Corporate Raiders: Head’em Off at Value Gap, Harvard Business Review, July-August, 1988. WMM, Chapter 19 Questions: How did the stock market assess Philip Morris’s $90 per shard bid for Kraft? What is the impact of Kraft’s restructuring plan on the takeover contest? What is the value to shareholders of the restructuring proposed by Kraft?

Module three: Organizational Issues in M&A Required Readings 1. Davis, RE., (1968). Compatibility in Corporate Marriages, Harvard Business Review, JulyAugust 1968. 2. Howell, RA. (1970). Plan to Integrate your Acquisitions, Harvard Business Review, November-December 1970. 3. Carey, D. (2000). A CEO Roundtable on Making Mergers Succeed, Harvard Business Review, May-June 2000. 4. Ashkenas, RN., and Francis, SC. (2000). Integration Managers: Special Leaders for Special Times, Harvard Business Review, November-December 2000. 5. Harding, D., and Rouse, T. (2007). Human Due Diligence, Harvard Business Review, April 2007. Additional (Recent Research) Readings 1. Basu, K. (2006). Merging Brands after Mergers, California Management Review, Vol.48, No.4, Summer 2006. 2. Antila, EA., (2006). The Role of HR Managers in International Mergers and Acquisitions: A multiple case study, International Journal of Human Resource Management, Vol.17, No.6, June 2006. 3. Homburg, C., and Bucerius, M. (2006). Is Speed of Integration Really a Success Factor of Mergers and Acquisitions? An analysis of the role of internal and external relatedness, Strategic Management Journal, Vol.27. Session 09: Organizational issues in mergers Case: Tata Tea Ltd. and Tetley, PLC (A) Reading: WMM, Chapter 22 Questions: What are the challenges in reaping the synergies in the merger? What should be the priorities for Khusrokhan amongst the integration problems? Which ones should he tackle first? Why? Session 10: Managerial response to post-merger integration Case: Asea Brown Boveri Reading: WMM, Chapter 22 Questions: What is the sequence of steps taken by ABB to manage the integration? What is the role of the new organizational structure and systems in ensuring that the organization manages its contradictions – big and small; local and global; and decentralized with central control?