Merger Acquisition Joint Venture

Mergers,
Acquisitions & Joint

Ventures
Overview
 Mergers & Acquisition
 Differences
 Modes of Mergers & Acquisitions
 Types of Mergers
 Types of Acquisitions
 The Reasons Behind Mergers & Acquisitions
 Pakistan Scenario- Real Life Examples
 Joint Venture
 Benefits & Risks of Joint Venture
 Pakistan Scenario – Real Life Example
 Difference between Merger, Acquisition, Joint Venture
Merger and Acquisition
 A Merger is a tool used by companies
for the purpose of expanding their
operations often aiming at an increase
of their long term profitability.
 An Acquisition, also known as a

takeover, is the buying of one company
(the ‘target’) by another.
Differences
Mergers Acquisitions
Two firms are combined on a One firm buys another firm

relatively co-equal basis
 Parent stocks are usually  Can be by means of

retired and new stock issued controlling share, a
majority, or all of the target
firm’s stock
 Name may be the original or a
combination
 Can be friendly or hostile
 One of the partners take over
the dominant management  Usually done through a
tender offer
Modes of Mergers &
Acquisitions
Types of Mergers
 Horizontal – between business competitors
 Vertical – Moving up or down the value

chain
 Conglomerate – Unrelated sectors
 De-merger – Hive-off of an undertaking

into a separate company
Practical Examples of
Merger
1 Merger of M/s. Pakistan Credit and Investment Corporation with and 31-12-2007
into M/s. NIB Bank Limited.
2 Merger of M/s. PICIC Commercial Bank Limited with and into M/s. 31-12-2007
NIB Bank Limited..
3 Merger of M/s. Yousaf Sugar Mills Limited with M/s. Abdullah 24-06-2008
Sugar Mills Limited
4 Merger of M/s. Crescent Bahuman Energy and M/s. Crescent 16-04-2008

Bahuman Textile Limited with and into M/s. Crescent Bahuman
Limited.
5 Merger of M/s. Jubilee Energy Limited with and into M/s. Jubilee 18-11-2008
Spinning and Weaving Mills Limited.
6 Merger of M/s. Nishat Apparel Limited with and into M/s Nishat 11-11-2008
Mills Limited.
Types of Acquisitions
 Asset Purchase
 Stock Purchase
Practical Examples OF
Acquisition
1 Acquisition of shares of M/s. Wazeer Ali Industries Limited by M/s. 13-12-2007

Dalda Foods (Pvt) Limited.
2 Acquisition of shares of M/s. MCB Bank Limited by M/s. Malayan 20-05-2008

Banking Berhad 20-05-2008
3 Acquisition of shares of Agro General Insurance Company by M/s. The 21-05-2008
Direct Insurance Company. 21-05-2008
4 Acquisition of shares of M/s. ABN Amro Bank ( Pakistan ) Limited by 22-05-2008

a consortium led by The Royal Bank of Scotland Group PLC.
5 Acquisition of shares of M/s. Pakistan Cement Company Limited by 23-05-2008
M/s. Lafarge S .A.
Acquisition Procedure
In an acquisition one firm acquires the other,
in either a friendly or hostile takeover:
 Friendly Procedure
 Unfriendly Procedure
Stockholders
 Have to be willing to give up their shares for the

offered price
 The majority must approve for an acquisition to be
successful
The Reasons Behind
Mergers & Acquisitions
 Synergies
 Growth
 Diversification to Reduce Risk
 Economies of Scale
 Acquiring Assets Cheaply
 Tax Losses
Tax Losses
Consider the following possible combination of Rich Inc. and

Poor Inc.
Rich Inc. Poor Inc. Merged
EBT $2,000 ($1,000) $1,000
Example
Tax (35%) 700 -0- 350

EAT $1,400 ($1,000) $650
Operating independently Rich pays $700 in taxes while Poor

pays nothing, for a combined total of $700. However, the
merged companies pay a combined tax of only $350.
Pakistan Scenario
Real Life Examples

Controlling Authorities
 CCP (Competition Commission Pakistan)
 SECP (Security Exchange Commission of

Pakistan)
 SBP (State Bank of Pakistan)
 High Court
Example of Merger
NIB Bank Ltd.
 NIB Bank Ltd. merged with PICIC and PICIC Commercial Bank on 31
December 2007
 Horizontal type
 NIB Bank Ltd is a wholly owned subsidiary of Temasek Holdings of

Singapore
 Initially NIB had 41 branches(2006)
 A total of about 646.6mn shares were issued by NIB at the merger
 NIB financed the merger at a right issue of Rs.18.65bn and acquired

63.36% of stake in the PICIC
 Now NIB Bank is the 7th largest bank of Pakistan with 240 branches,
450,000 customers and 100 ATMs in 60 cities of Pakistan
NIB Bank Ltd.
 At the date, 2nd highest paid-up capital of
Rs.28.43bn after SCBPL with the total assets of
Rs.176.6bn
 PACRA rating AA- long-term and A1+ short-term
 Merger with PICIC was in order to expand the

business and enhance in innovative products
 Concentrating on SME and Commercial banking and

Salaam banking
NIB Bank
 Combined entity will gear up the
operational excellence by:

 enhancing staff productivity and customer
service delivery channels
 improving in technology and its usage
 strengthening the risk management and
controlling the environmental challenges
 improving in the asset management arms and
insurance affiliate in order to ensure attractive
dividend stream for NIB
Example of an
Acquisition
Reasons Of Standard
Chartered
 Getting listed in KSE
 Commonalities in both bank
 Expanded geographic coverage
 Access to new customer segments

[SME / Middle Market / Agriculture]
Combined Entity Will Deliver
 Economies of scale
 Stronger operating platform
 Wider distribution reach

Results Of Acquisition
 5th largest bank in Pakistan in terms of profitability and
assets
 Revenue USD 225 million
 Operations in 22 cities of Pakistan.
 800,000 Customers; 9000 workforce
 6th largest Consumer Banking in the Group
 3rd largest branch network (115 braches) in the Group

Joint Venture
 Combining complementary R & D technologies
 Efficient commercialization of a technology or business
concept
 Developing or acquiring marketing or distribution expertise
 Sharing of professionals with unique skills
 Financial support or sharing of economic risk
 Acceleration of revenue growth
 Ability to increase profit margins
 Expansion to new domestic markets
 New product development
Benefits of Joint
Ventures
Businesses of any size can use joint ventures to strengthen long-term
relationships or to collaborate on short-term projects.
A successful joint venture can offer:
 access to new markets and distribution networks
 increased capacity
 sharing of risks and costs with a partner
 access to greater resources, including specialized staff, technology and

finance
 A joint venture can also be very flexible. For example, a joint venture can
have a limited life span and only cover part of what you do, thus limiting the
commitment for both parties and the business' exposure.
 Joint ventures are especially popular with businesses in the transport and
travel industries that operate in different countries.
Risks of Joint Ventures
Partnering with another business can be complex. It takes time and effort to
build the right relationship. Problems are likely to arise if:
 the objectives of the venture are not 100 per cent clear and communicated
to everyone involved
 the partners have different objectives for the joint venture
 there is an imbalance in levels of expertise, investment or assets brought

into the venture by the different partners
 different cultures and management styles result in poor integration and co-
operation
 the partners don't provide sufficient leadership and support in the early
stages
 Success in a joint venture depends on thorough research and analysis of

aims and objectives. This should be followed up with effective
communication of the business plan to everyone involved.
Example of a Joint
Venture
Indus Motor Company Ltd.
 Indus Motor Company is a joint venture of the

House of Habib, Toyota Motor Corporation
and Toyota Tsusho Corporation.
 It manufactures and markets Toyota and

Daihatsu vehicles in Pakistan.
 This is one of the few Toyota manufacturing

sites in the world that manufactures both
Toyota and Daihatsu vehicles on the same
production line.
Indus Motor Company
Ltd.
 Indus Motor Company, with support from Toyota Motor
Corporation has worked closely with its 62 local
vendors for increased localization and technology
transfer.
 Pakistan is the highest producer of Corolla in Asia. At

the time of the Corolla launch in March 2002, the
company was producing 57 vehicles per day. Today, it
produces 200 vehicles per day.
 Indus Motor has undertaken a number of expansion

projects which include an in-house press plant for
making car body parts, a cogeneration power plant to
optimize energy consumption etc. which is a part of
long term technology transfer strategy.
PSO and Pizza Hut’s Joint
Venture
 Pakistan State Oil and Pizza Hut‘s joint

venture.
 Pizza Hut and Pakistan state Oil (PSO)

jointly decided to open Pizza Hut branch
on every PSO petrol pump all over the
Pakistan. The first shop is opened at the
PSO branch of Lahore Cantt.
 As per MD PSO Mr. Muhammad Jalees, it

is the proof of quality service of PSO that
Pizza Hut decided to make a Joint venture
with
them.
Difference between Merger,
Acquisition & Joint Venture
 Merger = two companies come together "permanently" for
mutual gains or to reduce competition
 Acquisition = one company buys another company which

may or may not be doing well
 Takeover = same like "acquisition", but generally a

company buys another company which is not doing well or
has gone bankrupt.
 Joint Venture = two companies come together "temporarily"

for mutual gains for a particular project/job. after the
project/job is completed the joint venture is dissolved.
Conclusion

Merger Acquisition Joint Venture

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Mergers,

Acquisitions & Joint

 An Acquisition, also known as a

Two firms are combined on a One firm buys another firm

 Parent stocks are usually  Can be by means of

 Vertical – Moving up or down the value

 Conglomerate – Unrelated sectors

 De-merger – Hive-off of an undertaking

4 Merger of M/s. Crescent Bahuman Energy and M/s. Crescent 16-04-2008

1 Acquisition of shares of M/s. Wazeer Ali Industries Limited by M/s. 13-12-2007

2 Acquisition of shares of M/s. MCB Bank Limited by M/s. Malayan 20-05-2008

4 Acquisition of shares of M/s. ABN Amro Bank ( Pakistan ) Limited by 22-05-2008

 Have to be willing to give up their shares for the

Consider the following possible combination of Rich Inc. and

Tax (35%) 700 -0- 350

Operating independently Rich pays $700 in taxes while Poor

Real Life Examples

 CCP (Competition Commission Pakistan)

 SECP (Security Exchange Commission of

 SBP (State Bank of Pakistan)

 NIB Bank Ltd is a wholly owned subsidiary of Temasek Holdings of

 Initially NIB had 41 branches(2006)

 A total of about 646.6mn shares were issued by NIB at the merger

 NIB financed the merger at a right issue of Rs.18.65bn and acquired

 PACRA rating AA- long-term and A1+ short-term

 Merger with PICIC was in order to expand the

 Concentrating on SME and Commercial banking and

operational excellence by:

 Commonalities in both bank

 Expanded geographic coverage

 Access to new customer segments

 Stronger operating platform

 Wider distribution reach

 Revenue USD 225 million

 Operations in 22 cities of Pakistan.

 800,000 Customers; 9000 workforce

 6th largest Consumer Banking in the Group

 3rd largest branch network (115 braches) in the Group

A successful joint venture can offer:

 access to new markets and distribution networks

 sharing of risks and costs with a partner

 access to greater resources, including specialized staff, technology and

 the partners have different objectives for the joint venture

 there is an imbalance in levels of expertise, investment or assets brought

 Success in a joint venture depends on thorough research and analysis of

 Indus Motor Company is a joint venture of the

 It manufactures and markets Toyota and

 This is one of the few Toyota manufacturing

 Pakistan is the highest producer of Corolla in Asia. At

 Indus Motor has undertaken a number of expansion

 Pakistan State Oil and Pizza Hut‘s joint

 Pizza Hut and Pakistan state Oil (PSO)

 As per MD PSO Mr. Muhammad Jalees, it

 Acquisition = one company buys another company which

 Takeover = same like "acquisition", but generally a

 Joint Venture = two companies come together "temporarily"

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