INTRODUCTION This is the first dissertation which will be on introduction and would contain brief elements about the

dissertation which is carried out. The focus of the section would be to highlight about the focus of the dissertation along with its aims and objectives. 1. Introduction
In todays market the main objectives of the firm is to make profits and create shareholder wealth.Growth can be achieved by introducing new products and services or by expanding with its present operations on its existing product. Internal growth can be achieved by introducing new products while external growth can be achieved by entering into merger and acquisitions.Merger and acquisitions as an external growth strategy has gained spurt because of increased deregulation , privatization,globalization,and liberalization adopted by several countries the world over.Merger and acquisition have become an important medium to expand portfolios and to enter into global market. An entrepreneur may grow its business either by internal expansion or by external expansion. In the case of internal expansion, a firm grows gradually over time in the normal course of the business, through acquisition of new assets, replacement of the technologically obsolete equipments and the establishment of new lines of products. But in external expansion, a firm acquires a running business and grows overnight through corporate combinations. These combinations are in the form of mergers, acquisitions, amalgamations and takeovers and have now become important features of corporate restructuring. They have been playing an important role in the external growth of a number of leading companies the world over. They have become popular because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalisation of businesses. In the wake of economic reforms, Indian industries have also started restructuring their operations around their core business activities through acquisition and takeovers because of their increasing exposure to competition both domestically and internationally. Mergers and acquisitions are strategic decisions taken for maximisation of a company's growth by enhancing its production and marketing operations. They are being used in a wide array of fields such as information technology, telecommunications, and business process outsourcing as well as in traditional businesses in order to gain strength, expand the customer base, cut competition or enter into a new market or product segment. However it is important to note that merger and acquisitions do not regularly create value for shareholders.Many merger and acquisitions fail as well. Failure occurs and it deteriorate the wealth of shareholders when the integration process for mergers and acquisitions does not work

in proper flow. Consulting firms also that almost two thirds of the firms who enter into merger and acquisition result into failure which leads to divestures at a later stage.

OVERVIEW OF ACQUISITION A deal would give L'Oreal, based in France, access to Body Shop's international distribution network through retail outlets and the Internet. Currently, L'Oreal's products are available in more than 130 countries. The company also owns outlets that sell Kiehl's cosmetics. L'Oreal could use a Body Shop deal as a way to reduce its own animal testing. While Body Shop is known for products that aren't tested on animals, the French company has yet to ban animal testing. L'Oreal Chairman and Chief Executive Officer Lindsey Owen-Jones said L'Oreal has a long-term plan of "joining Body Shop on the issue." L'Oreal SA unveiled a GBP 652.3 million ($1.1 billion) takeover offer for Body Shop International PLC of the U.K., as the world's largest cosmetics group seeks to broaden its international retail presence with more than 2,000 stores. The proposed acquisition of Body Shop, known for its budget natural ingredients, cosmetics and body-lotion range, would boost L'Oreal's existing portfolio, which consists of 18 brands including Lancome, Maybelline, Garnier, Redken and Kerastase. The cash bid of 300 pence a share -- a 34% premium to Body Shop's share price before speculation of a possible takeover bid emerged last month -- comes weeks after L'Oreal's incoming chief executive, Jean- Paul Agon, said the company will grow via acquisitions over the next few years. Under the terms of the acquisition, Body Shop would retain its separate identity and current management, the companies said. No store closures or job cuts are planned. Body Shop founders Anita and Gordon Roddick, who stopped managing the company in 2002 but stayed on as nonexecutive directors, are expected to receive about GBP 117 million from their 18% stake. Body Shop, founded 30 years ago in Brighton, England, has more than 2,000 stores world-wide. The company gained popularity during the 1980s when it became one of the first to sell skin-care products made of natural ingredients in recycled packaging. It has lost cachet more recently, however, as other stores -- especially in the U.S. -- have introduced earth-friendly products.

L'Oreal could use a Body Shop deal as a way to reduce its own animal testing. While Body Shop is known for products that aren't tested on animals, the French company has yet to ban animal testing. L'Oreal Chairman and Chief Executive Officer Lindsey Owen-Jones said L'Oreal has a long-term plan of "joining Body Shop on the issue." ______________________________________

OBJECTIVE OF STUDY:

To critically analyze financial impact of merger and acquisition of LOreal

To strategically evaluate the impact on shareholders wealth post

and The body shop.

merger and acquisition.

Literature Review:

There are various strategic and financial objectives that influence merger and acquisition.Two organization with different corporate personalities, cultures and value systems are brought together.The term merger and acquisitions are often used interchangibly.In lay parlance, both are viewed as the same. A particular activity is called merger when corporations come together to combine and share there resources to achieve common objectives.In a merger both firm combine to form a common entity and the owners of both the combining firm remain as joint owners of new entity. An acquisition could be explained as event where a company takes a controlling ownership interest in another firm, a legal subsidiary of another firm, or selected assets of another firm. This may involve the purchase of another firms asset or stock.Acquiring all the assets of the selling firm will avoid the potential problem of having minority shareholders as opposed to acquisition of stock. However the cost involved in transferring the assets are generally very high . This is another term, takeover which is often used to describe different activities. It is a broad term that sometimes refer to hostile transactions and sometimes to both friendly and unfriendly merger. Takeover is slightly different than acquisitions however the meaning of the later remaining the same.Takeover normally undergoes the process whereby the acquiring company directly approaches the minority shareholders the through an open tender offer to purchse their shares without the consent of the target companys management.

Merger and acquisition negotiations and their impact upon

target company top management turnover

Effects of merger and acquisition negotiations on subsequent target company top management turnover. Three attributes of the companies and seven attributes of the merger and acquisition transactions are examined. The results indicate that the primary impact of negotiations is evident in the fourth year after a settlement date. When a buyer approaches an unrelated company that has been subject to previous takeover interest with a merger proposal, and an agreement is reached, the targets management team is likely to experience abnormally high turnover 4 years later. Additional research ideas are suggested to help explain the sizeable turnover rates in the 3 years immediately following a merger or acquisition.

The impact of merger related regulations on the shareholders of acquiring firm

The economic impact of merger related regulatory changes in securities laws , tax codes and accounting principles is examined by estimating rate of returns of shareholders engaged in acquisition using CAPM(capital asset pricing model) or market model

The effect of takeovers on the fundamental value of acquirers.

A new methodology to examine the financial impact of acquisitions, designed to address whether takeovers yield a positive net present value for the acquiring company. Specifically, we employ the residual income valuation method to compare the fundamental value of the acquiring company before acquisition with the fundamental value after acquisition. We apply this methodology to 303 UK acquisitions completed during 1985-1996, and compare the results with the effects of takeover on profitability and short- and long-run share returns. We find that the impact of acquisition on fundamental value is slightly negative but statistically insignificant. This result differs from the effect of takeover on profitability which is significantly positive and the effect of takeover on share returns which is significantly negative. Do Stock Mergers Create Value for Acquirers?

The overvalued firms create value for long-term shareholders by using their equity as currency. Any approach centered on abnormal returns is complicated by the fact that the most overvalued firms have the greatest incentive to engage in stock acquisitions. We solve this endogeneity problem by creating a sample of mergers that fail for exogenous reasons. We find that unsuccessful stock bidders significantly underperform successful ones. Failure to consummate is costlier for richly priced firms, and the unrealized acquirer-target combination would have earned higher returns. None of these results hold for cash bids. How the no. of partners in a standard setting initiative affect shareholders risk& return: Collaboration between business enterprises to set standards for information technology examining if such cooperation reduces the financial risks faced by stockholders of the individual companies involved. It was found that an increase in the number of companies involved in cooperation on standards decreased the market risk on stockholder rate of return as measured by beta, but increased the idiosyncratic risk to the individual firms' returns. This indicates companies elected to participate in a large standardization project obtain a reduction in abnormal returns on stocks. When big acquisitions pay off mergers that create excess returns to shareholders, as gleaned from the authors' analysis of several case studies of both successful and unsuccessful combinations. In valuecreating deals, managers of the acquiring firm take advantage of information not available to them prior to the deal to reassess and revise upwards targeted benefits from synergies.Successful deals are marked by an aggressive effort to identify and communicate what the combined entity's dominant corporate culture will be. In successful mergers chief executives balance their time between merger issues and their ongoing businesses.

Creditor-Focused Corporate Governance: Evidence from Mergers and Acquisitions in Japan (Vikas Mehrotra, Dimitri van Schaik, Jaap Spronk,and Onno Steenbeek)

Mergers in Japan have the dubious distinction of not creating wealth for shareholders of target rms, in sharp contrast to what occurs in much of the rest of the world. Using a sample of 91 mergers from 1982 through 2003 we document several distinctive features of the merger market in Japan: Mergers tend to be countercyclical and appear to be driven chiey by creditor concerns. In particular, where the merging rms share a common main bank, we nd that merger gains are lower. Overall, our results point to a market that is distinctly less shareholder focused than that in the U.S., and a market where creditors play an important, perhaps dominant, role in corporate governance

Measuring Post Merger and Acquisition Performance: An Investigation of Select Financial Sector Organizations in India

The present paper examines the impact of mergers and acquisitions on the financial efficiency of the selected financial institutions in India. The analysis consists of two stages. Firstly, by using the ratio analysis approach, we calculate the change in the position of the companies during the period 2000-2008. Secondly, we examine changes in the efficiency of the companies during the pre and post merger periods by using nonparametric Wilcoxon signed rank test. While we found a significant change in the earnings of the shareholders, there is no significant change in liquidity position of the firms. The result of the study indicate that M&A cases in India show a significant correlation between financial performance and the M&A deal, in the long run, and the acquiring firms were able to generate value

When Firms Are Desperate to Grow via Acquisition: The Effect of Growth Patterns and Acquisition Experience on Acquisition Premiums Author: Ji-Yub (Jay) Kim, Jerayr (John) Haleblian, Finkelstein, Sydney

In this paper we draw on work in behavioral learning theory and risk taking to examine whether firms desperate for growth overpay for acquisitions, and we develop a theory of desperation in the context of growth. We suggest two key drivers of such desperation: (1) when a firm's organic growth is low, paying handsomely for acquisitions may be one of the few options for growth (2) when a firm becomes dependent on acquisitions for continuing growth, it is vulnerable to overpaying for acquisitions. Although pressures to grow via acquisition can be intense, we also test whether the benefits of acquisition experience--from both acquirers and their advisors--help to prevent overpayment caused by desperation. We test these ideas in a sample of firms in the banking industry between 1994 and 2005. Consistent with this theory of desperation, our results showed that firms desperate for growth are more likely to pay high acquisition premiums. Our findings on the moderating role of acquisition experience showed that advisors' acquisition experience is more helpful than acquirers' own acquisition experience in preventing desperate acquirers from overpaying for a target.

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