Mergers and Acquisitions: Nature and Significance

Mehta, Dhawal; Samanta, Sunil

doi:10.1177/0256090919970404

Cited by 3 publications

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“…In addition, a new section was added to the Indian Income Tax Act in 1977, which provided for fiscal incentives when ailing units were taken over by healthy units. The profits of healthy units could now be adjusted against the losses (including depreciation and investment allowance) of the sick surviving unit (Mehta and Samanta, 1997). Hence, we find that M&As are being used for consolidation by existing large firms, which either merge their subsidiaries or other group companies into themselves or acquire smaller, weaker, uncompetitive firms, in many cases for tax benefits and enhanced size.…”

Section: Merger Announcements In India 801mentioning

confidence: 90%

Redistribution of wealth on merger announcements in India

Ramakrishnan

2010

Management Research Review

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Purpose -Research on mergers has made considerable progress over the last 50 years and has produced a vast body of literature, especially in the developed markets of the world. Little is known about the effect of announcements of mergers on shareholder wealth in the Indian context. Also unknown is the apparent influence of the market for corporate control on such wealth effects. The purpose of this paper is to fill gaps in this knowledge. Design/methodology/approach -The study uses a standard event study method and statistically analyses share price and other secondary data. Findings -It was found that the acquired firm shareholders enjoy significant wealth gains of 11.6 per cent in a 21-day event window period, whereas the acquiring and combined firm shareholders do not do so. Mergers that do not see transfer of corporate control bestow significant wealth gains of 21.1 per cent on announcement on the target firm shareholders, whereas those where such a transfer takes place do not witness such gains. Research limitations/implications -One of the limitations of the study is the period. This study, a part of research covering a larger gamut of issues, necessitated the restriction of the time to the seven-year 1996-2002 timeline. The sample size of 34 usable, finally merged pairs of firms may appear limited, though several studies of this genre have used smaller sample sizes. However, the findings obtained are of value. The study points towards further research using a longer period that might help one to understand longitudinal variations in merger announcement effects on shareholder wealth. It also encourages future studies on several other factors which influence such effects. Practical implications -The redistribution of shareholder wealth on merger announcement in India seems to be following a pattern similar to that found in many other studies, though the quantum of gains to the target shareholders is larger. Managers may also have to factor-in the impact of the transfer of corporate control from the acquired to the acquiring firm on their assessment of shareholder wealth effects before announcing mergers. Originality/value -The paper simultaneously adds to knowledge about wealth effects on merger announcement and the influence of the market for corporate control on this effect, in the Indian context.

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Section: Merger Announcements In India 801mentioning

confidence: 90%

Redistribution of wealth on merger announcements in India

Ramakrishnan

2010

Management Research Review

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“…Firms are free to fix their capacity, technology, location, etc., to enhance their efficiency (Rao, 1998;Basant, 2000). The amendment of the MRTPA has made it possible for group companies to consolidate through mergers eliminating duplication of resources and in bringing down costs (Mehta and Samanta, 1997). M&A has become a viable strategy for growth in India due to a) easing of regulation, b) restructuring of family-owned conglomerates, c) sale of state-owned companies, d) overcapacity, and e) deregulation of fragmented industries (Anandan, et.…”

Section: Mandas In India After the Reformsmentioning

confidence: 99%

Long-term Post-merger Performance of Firms in India

Ramakrishnan¹

2008

Vikalpa: The Journal for Decision Makers

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Mergers are important corporate strategy actions that, among other things, aid the firm in external growth and provide it competitive advantage. This area has spawned a vast amount of literature over the past half a century, especially in the developed economies of the world. India too has been seeing a growth in the number of mergers over the past one-and-a-half decades since economic liberalization and financial reforms were introduced in 1991. Studies on the post-merger long-term performance of firms in both the developed and the developing markets have not been able to come to a definite and convincing conclusion about whether mergers have helped or hindered firm performance. Our literature review shows that mergers do not appear to be resulting in favourable financial performance of firms in the long-term in the markets where they are a fairly recent phenomenon. The economic liberalization and reforms initiated in 1991 in India have served to trigger corporate restructuring through M&As. The removal of industrial licensing, lifting of monopoly provisions under the MRTP Act, easing of foreign investment, encouraging the import of raw materials, capital goods, and technology have increased the competition in Indian industry. Firms are free to fix their capacity, technology, location, etc., to enhance their efficiency. The amendment of the MRTPA has made it possible for group companies to consolidate through mergers eliminating duplication of resources and bringing down costs. M&A has now become a viable strategy for growth in India. Immediately after liberalization, Indian industry added capacity since it expected a rapidly expanding market due to the perceived latent demands of the vast middle class. But the lower income groups could not participate in the consumer goods market. The economy began to slow down from 1996. This squeezed the profit margins of local firms that now had excess capacities. Industry saw a spate of restructuring in the form of shedding non-core activities in favour of core competencies and expansion through M&As, in a bid for survival. According to market reformers, growth is the result of efficient utilization of resources on the supply side. In a free market economy, utilization becomes more efficient due to competition. It is thus hypothesized that -- Mergers in India have resulted in improved long-term post-merger firm operating performance through enhanced efficiency. Statistically analysed cash flow accounting measures were used to study whether firm performance improved in the long-term post-merger. This research, on a sample of 87 domestic mergers, validates the hypothesis: Efficiency appears to have improved post-merger lending synergistic benefits to the merged entities. Synergistic benefits appear to have accrued due to the transformation of the hitherto uncompetitive, fragmented nature of Indian firms before merger, into consolidated and operationally more viable business units. This improved operating cash flow return is on account of improvements in the post-merger operating margins of the firms, though not of the efficient utilization of the assets to generate higher sales.

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Motivation and Outcome of Malaysian Takeovers: An International Perspective

Ali

Gupta²

1999

Vikalpa: The Journal for Decision Makers

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This paper examines the potential motives and effects of corporate takeovers that occurred in Malaysia during the period 1980 through 1993. The Mueller's methodology, which has been adopted for Australia, USA, UK, and five European countries, is employed in order to provide an analysis of the Malaysian takeovers on an international perspective. The findings indicate that the Malaysian takeovers were motivated by size, growth, and profit considerations, and supported by the desire of having a balanced leverage, thus favouring the eclectic theory of takeovers. In terms of the outcomes, the paper finds that the acquiring firms have achieved larger size at the expense of reduced profits both for themselves and the acquired firms. In contrast to other countries, the bidder firms in Malaysia, in general, have lower profitability, higher risk, and lower leverage vis-a-vis the control bidder firms. Also, in Malaysia, the target firms have significantly better pre-takeover growth and profit performance than the control target firms, which is quite the opposite in other countries.

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Mergers and Acquisitions: Nature and Significance

Cited by 3 publications

References 0 publications

Redistribution of wealth on merger announcements in India

Redistribution of wealth on merger announcements in India

Long-term Post-merger Performance of Firms in India

Motivation and Outcome of Malaysian Takeovers: An International Perspective

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