Example of Merger and Acquisition

Mergers and Acquisitions
MEHBOOB ALAM
REG NO 11570
TOPIC: Mergers and Acquisitions of Pakistani companies
Introduction:
Mergers and acquisitions (M&A) are defined as consolidation of
companies. Differentiating the two terms, Mergers is the combination of
two companies to form one, while Acquisitions is one company taken
over by the other. M&A is one of the major aspects of corporate finance
world. The reasoning behind M&A generally given is that two separate
companies together create more value compared to being on an
individual stand. With the objective of wealth maximization, companies
keep evaluating different opportunities through the route of merger or
acquisition.
Mergers & Acquisitions can take place:

• by purchasing assets
• by purchasing common shares
• by exchange of shares for assets
• by exchanging shares for shares
Types of Mergers and Acquisitions:

Merger or amalgamation may take two forms: merger through
absorption or merger through consolidation. Mergers can also be
classified into three types from an economic perspective depending on
the business combinations, whether in the same industry or not, into
horizontal ( two firms are in the same industry), vertical (at different
production stages or value chain) and conglomerate (unrelated
industries). From a legal perspective, there are different types of mergers
like short form merger, statutory merger, subsidiary merger and merger
of equals.
Reasons for Mergers and Acquisitions:

• Financial synergy for lower cost of capital
• Improving company’s performance and accelerate growth
• Economies of scale
• Diversification for higher growth products or markets
• To increase market share and positioning giving broader market access
• Strategic realignment and technological change
• Tax considerations
• Undervalued target
• Diversification of risk
Principle behind any M&A is 2+2=5

There is always synergy value created by the joining or merger of two
companies. The synergy value can be seen either through the Revenues
(higher revenues), Expenses (lowering of expenses) or the cost of capital
(lowering of overall cost of capital).
Three important considerations should be taken into account:

• The company must be willing to take the risk and vigilantly make
investments to benefit fully from the merger as the competitors and the
industry take heed quickly
• To reduce and diversify risk, multiple bets must be made, in order to
narrow down to the one that will prove fruitful
• The management of the acquiring firm must learn to be resilient,
patient and be able to adopt to the change owing to ever-changing
business dynamics in the industry
Stages involved in any M&A:

Phase 1: Pre-acquisition review: this would include self assessment of
the acquiring company with regards to the need for M&A, ascertain the
valuation (undervalued is the key) and chalk out the growth plan through
the target.
Phase 2: Search and screen targets: This would include searching for the
possible apt takeover candidates. This process is mainly to scan for a
good strategic fit for the acquiring company.
Phase 3: Investigate and valuation of the target: Once the appropriate
company is shortlisted through primary screening, detailed analysis of
the target company has to be done. This is also referred to as due
diligence.
Phase 4: Acquire the target through negotiations: Once the target
company is selected, the next step is to start negotiations to come to
consensus for a negotiated merger or a bear hug. This brings both the
companies to agree mutually to the deal for the long term working of the
M&A.
Phase 5:Post merger integration: If all the above steps fall in place, there
is a formal announcement of the agreement of merger by both the
participating companies.
Reasons for the failure of M&A – Analyzed during the stages of M&A:
Poor strategic fit: Wide difference in objectives and strategies of the
company
Poorly managed Integration: Integration is often poorly managed
without planning and design. This leads to failure of implementation
Incomplete due diligence: Inadequate due diligence can lead to failure of
M&A as it is the crux of the entire strategy
Overly optimistic: Too optimistic projections about the target company
leads to bad decisions and failure of the M&A
Example: Breakdown in merger discussions between IBM and Sun
Microsystems happened due to disagreement over price and other terms.
Pakistan State Oil
Pakistan State Oil ; reporting name: PSO) is a Karachi-

based Pakistani state-owned petroleum corporation involved in
marketing and distribution of petroleum products.[2] It has a network of
3,689 petroleum filling stations, out of which 3500 outlets serve the
public retail sector and 189 outlets serve wholesale bulk
customers. Pakistan State Oil is Pakistan's largest fuel marketing
company.
Company overview
PSO controls a market share of over 60% of the total oil market with
customer portfolio including dealers, government agencies, autonomous
bodies, independent power projects and other corporate customers. It is
involved in import, storage, distribution and marketing of a range of
petroleum products including gasoline, diesel, fuel oil, jet fuel, LPG,
CNG and petrochemicals.
It was founded on December 30, 1976,after Pakistan's government took

over the management of Pakistan National Oil (PNO) and Dawood
Petroleum Limited, Esso Eastern and renamed into POCL (Premier Oil
Company Limited) for marketing of Petroleum Products. PSO is the first
public company in Pakistan to pass the PKR 1 trillion revenue mark.
Pakistan State Oil has been a member of the prestigious World
Economic Forum since 2003.
History
The creation of Pakistan State Oil (PSO) can be traced back to the year
1974, when on January 1; the government took over and merged
National Oil (PNO) and Dawood Petroleum Limited (DPL) as Premiere
Oil Company Limited (POCL).
Soon after that, on 3 June 1974, Petroleum Storage Development

Corporation (PSDC) came into existence. PSDC was then renamed as
State Oil Company Limited (SOCL) on August 23, 1976. Following
that, the Esso undertakings were purchased on 15 September 1976 and
control was vested in SOCL. The end of that year (30 December 1976)
saw the merger of the Premier Oil Company Limited and State Oil
Company Limited, giving way to Pakistan state Oil (PSO).
After PSO's inception, the corporate culture underwent a comprehensive

renewal program which was fully implemented in 2004. This program
over the years included the revamping of the organizational architecture,
rationalization of staff, employee empowerment and transparency in
decision making through cross functional teams. This new corporate
renewal program has divided the company's major operations into
independent activities supported by legal, financial, informative and
other services. In order to reinforce and monitor this structural change,
related check and balances have been established by incorporating
monitoring and control systems. Due to this effective implementation of
corporate reform and consistent application of the best industrial
practices and business development strategies, PSO has been able to
maintain its market leadership in a highly competitive business
environment. Pakistan State Oil delivers kerosene, light diesel oil and
lubricants to consumers via over 500 distributors all over Pakistan.
Puma Energy
Puma Energy Pakistan, formerly known as Admore Gas, is a
Pakistani oil marketing company which is a subsidiary of Singaporean
company Puma Energy and is based in Karachi, Pakistan.
It was founded in 2001. The company operates more than 470 retail
shops in the country.
In 2014, it was acquired by the Pakistani conglomerate company Chisti
Group.
In 2017, Puma Energy acquired majority stake in the company.As a
result, company became a joint-venture between Puma Energy and
Chisti Group.
Successful merger: Exxon and Mobil

Exxon Corp. and Mobil Corp. - the first and second largest oil producers in
the United States - made headlines when they announced their merger in
1998. This type of merger is a classic example of a horizontal merger. The
megadeal closed at $80 billion, with investors quite literally quadrupling
their money in the process.
Successful acquisition: Disney, Pixar and Marvel

Mass media conglomerate Disney found enormous success with two very
famous acquisitions; first, of animation heavyweight Pixar, then Marvel
Entertainment.

Walt Disney Co. acquired Pixar in 2006 for $7.4 billion, and has since seen
tremendous success with films like WALL-E, Finding Dory and Toy Story
3 – each of which have generated billions of dollars in revenue for the
company.

One of the main reasons for the success of this acquisition was the access it
gave Disney to Pixar’s advanced animation technology. By keeping Pixar’s
culture distinct, Disney was able to generate significant value without
destroying what made Pixar unique or successful.

Shortly after, Disney acquired Marvel Entertainment, paying $4 billion for
the entertainment company in 2009. With a highly lucrative string of
Marvel films premiering at the box office since then, they have already
made their money back – with more to come, no doubt.

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Mergers and Acquisitions

TOPIC: Mergers and Acquisitions of Pakistani companies

Mergers & Acquisitions can take place:

Types of Mergers and Acquisitions:

Reasons for Mergers and Acquisitions:

Principle behind any M&A is 2+2=5

Three important considerations should be taken into account:

Stages involved in any M&A:

Pakistan State Oil

Pakistan State Oil ; reporting name: PSO) is a Karachi-

It was founded on December 30, 1976,after Pakistan's government took

Soon after that, on 3 June 1974, Petroleum Storage Development

After PSO's inception, the corporate culture underwent a comprehensive

Successful merger: Exxon and Mobil

Successful acquisition: Disney, Pixar and Marvel

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