Corporate Restructuring, Mergers and Acquisitions

1.    Mention the Difference between - Leverage Buy out, Venture capital & growth fund?

    
2.    What do you mean by corporate control? Explain the how shares buy back work out?

3.    Write notes on the following:-

A) Split off.

B) Amalgamation.

C) Hostile Takeover Bid.

4.    Explain the Net Asset Value method of valuation of firm?    

5.    Mention the types of merge & acquisition?    

6.    what are the advantage of disinvestment in the Public Sector Units?

7.    Explain the Discounted Cash Flow method in details, with the help of suitable example?    

8.    What do you mean by Leverage Buy out (LBO)? How Leverage Buy Out deals take place?    

PART- B
Case Detail:
CASE STUDY
Tata Motors: Acquisition of Jaguar &
Land Rover
Ford Motors Company
Location: Dearborn, Michigan; Founded: 1903 by Henry Ford; Competitors: General Motors, Toyota;
Brand names: Lincoln, Mercury, Volvo, Mazda, Jaguar and Land Rover, CEO: Alan Mulally.
1913 - Assembly Line: “low priced, mass-produced automobile with standard interchangeable parts.” Hiring of African Americans, Virtual manufacturing, focus on safety, Advantage through fuel efficiency.
Jaguar: The ups and downs:
1922 - Founded in Blackpool as Swallow Sidecar Company
1960 - Jaguar name first appeared in 1935
1975 - Nationalized in due to financial difficulties
1984 - Floated off as a separate co in the stock market
1990 - Taken over by Ford
A statement of ultra luxury, Holds Royal warrants, Rarely advertised Ford’s formula one entry since 1990s.
1948: Land Rover is designed by the Rover Car co
1976: One millionth Land Rover leaves the production line
1994: Rover Group is taken over by BMW
2000: Sold to Ford for £1.8 billion.
The case of Land Rover:
Known for superior off-road performance, Used by military for projects and expeditions, Safe but less reliable, Makeover in recent times
Key issues:
• Ford acquired Jaguar for $2.5 billion in 1989.
• Ford acquired Land Rover for $2.75 billion in 2000.
• But the US auto major put the two marquees on the market in 2007 after posting losses of $12.6 billion in 2006 - the heaviest in its 103-year history.
The Deal Process: - 12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar.
August 2007 - Major bidders are identified
Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management
• India? s Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b)
• 03/01/2008 – Ford announces Tatas as the preferred bidders
• 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.
• 02/06/2008 – The acquisition is complete
TATA MOTORS – A SNAPSHOT
TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco.
Tata Motors? s break-even point for capacity utilization is one of the best in the industry worldwide
Listed on the New York Stock Exchange in 2004.
Making Waves Internationally
• NANO will mark the advent of India as a global centre for small-car production and represent a victory for those who advocate making cheap goods for potential customers at the 'bottom of the pyramid' in emerging markets.
• International praise came from Standard & Poor’s, which in December 2006 expressed the view that the “policy to support its companies and the improved financial profile of its entities also enhances the overall financial flexibility of Tata Motors.”
Why is Ford selling?
• Reports said losses at Jaguar stood at USD 715 million in 2006. Jaguar has been a dog i.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the United
Kingdom.
• The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007..
• Bringing down production costs and turning around the company successfully will be the challenge,” analysts said. It? s a test that Ford failed.
• Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and
Jaguar is so intertwined.
Ratan Tata says?
• We aim to support their growth, while holding true to our principle of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.„
• 'We have enormous respect for the two brands and will endeavor to preserve and build on their
• Heritage and competitiveness, keeping their identities intact,' he said in a statement.
Advantages to acquire JLR?
• Long term strategic commitment to automotive sector.
• Opportunity to participate in two fast growing auto segments.
• Increased business diversity across markets and products.
• Land rover provides a natural fit for TML? SUV segment.
• Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio.
• Benefits from component sourcing, design services and low cost engineering
Tata and the dream
NEED FOR GROWTH
• In the past few years, the Tata group has led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals.
• Tata Motors is India's largest automobile company, with revenues of $7.2 billion in 2006-07. With over
4 million Tata vehicles plying in India, it is the leader in commercial vehicles and the second largest in passenger vehicles.
COMPETITIVE ADVANTAGE
• Tata Motors is vulnerable to greater competition at home. Foreign vehicle makers including Daimler,
Nissan Motor, Volvo and MAN AG have struck local alliances for a bigger presence.
• Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.
Analysts pick
• Analysts indicate that Tata Motors can comfortably finance the acquisition of Jaguar and Land Rover.
The Indian automaker is sitting on a cash pile of over Rs 6,000 crore and generated free cash of over Rs
1,000 crore during FY07. It can easily use these reserves to raise more funds without endangering its finances. At the end of last financial year, Tata Motors? debt-to-equity ratio was a low 0.56, giving it ample head room to raise more funds.
• Over the next 3-4 years, Tata Motors plans to invest Rs 12,000 crore in setting up new units for a small car, trucks and SUVs and also to expand the capacity of its existing units.
• challenge for Tata Motors. These marquee brands have very high production costs and require phenomenally high engineering and research capabilities as they compete with likes of BMW and Audi.
“Taking over the brand is easy, bringing down production costs and turning around the company successfully, will be the challenge,” analysts said. It? s a test that Ford failed.
WHAT IS TATA PAYING FOR????
Inline image 1
FINANCING WAYS
• Low leverage of the auto biz provides funding flexibility
• Currently financed the purchase through a $3bn, 15month bridge loan
– It intends to refinance the loan through long-term funds
• valuable stakes in group companies
– owns $400m of Tata Steel at current prices
– owns stake in Tata Sons (Tata Group? s holding company) worth at least $600m
2. Tata Group has multiple levers
??Tata Auto Comp (TACO) - TATA group has a a rich ecosystem of JVs with leading players in
Auto ancillary space held through TACO.
??TCS, Corus and Tata Technologies have varied competencies in the Auto space
??We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2 years (current EBITDA margin)
- We estimate CY2007 EBITDA margin of JLR at around 6.5% – This could make the acquisition
PAT accretive in CY2009/FY10E
TAMO + JLR: Leverage and Valuation ratios
Leverage increases but coverage ratios reasonable
• Headline Debt/Equity of TAMO would increase to 2.5x from 1x
• Excluding the vehicle finance biz, leverage would go to 1.2x
• EBITDA/Interest remains at 5.0
TAMO is trading inline/modest discount to global peers
• EV/Sales (1-yr forward) of 0.5x against 0.4x for global peers
• P/E (1-yr forward) of 6.5x against 8.5x for global peers

Solve by www.solvezone.in contact for more details at 8882309876

QUESTION

1.    Write your observation regarding the JLR deal? Mention its advantages & disadvantages of this deal? 

2.    Why Ford Sell out these two iconic brands? Mention the reasons? 
What worked for TATA:

3.    What are the consequences of this deal financing on TATA group and its market position? 
Ans.

Question No.  1    Marks - 10
The process of selling receivables is    

Options    
factoring    
leasing    
hiring    
selling    

Question No.  2    Marks - 10
Recourse factoring involves getting back to    

Options    
SEBI    
Govt    
company    
investors

Question No.  3    Marks - 10
Mutual funds reduce    

Options    
risk    
profits    
liquidity    
investment    

Question No.  4    Marks - 10
Credit rating increases    

Options    
confidence    
cost    
time    
investment    

Question No.  5    Marks - 10
ADRs are issued only in    

Options    
India    
USA    
UK    
Asia

Question No.  6    Marks - 10
Open ended funds carry    

Options    
no entry load    
no exit load    
both of the above    
none of the above    

Question No.  7    Marks - 10
financial services are    

Options    
lease    
mutual funds    
factoring    
all of the above    

Question No.  8    Marks - 10
Tax funds    

Options    
are tax free    
are taxable    
are income funds    
are growth funds    

Question No.  9    Marks - 10
Hedging reduces    

Options    
risk    
return    
profits    
investment

Question No.  10    Marks - 10
Portfolio means    

Options    
investment in single security    
investment in group of securities    
invesment in govt securities only    
investment in bonds

Question No.  11    Marks - 10
But when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an "…………..".    

Options    
reverse takeover    
lease    
merger    
acquisition    

Question No.  12    Marks - 10
A ………………. is usually between two companies in the same business sector    

Options    
Book Building    
Loan syndication    
venture capital    
horizontal mergers    

Question No.  13    Marks - 10
A ………….. represents the buying of supplier of a business    

Options    
vertical merger    
Loan syndication    
venture capital    
horizontal mergers

Question No.  14    Marks - 10
Conglomerate M&A is the third form of M&A process which deals the merger between two irrelevant companies.    

Options    
vertical merger    
conglomerate merger    
venture capital    
horizontalmergers

Question No.  15    Marks - 10
An …………. is a merger: 1. approved by disinterested directors and 2. approved by disinterested stockholders    

Options    
vertical merger    
conglomerate merger    
horizontalmergers    
arm's length merger    

Question No.  16    Marks - 10
A ……….. merger usually refers to long term strategic holding of target (Acquired) firm.    

Options    
strategic merger    
conglomerate merger    
horizontalmergers    
arm's length merger    

Question No.  17    Marks - 10
 A strategic acquirer may also be willing to pay a premium offer to target firm in the outlook of the synergy value created after M&A process.    

Options    
TRUE    
FALSE    
can't say    
depends    

Question No.  18    Marks - 10
…………... means that the merged firm will have a greater value than the sum of its parts as a result of enhanced revenues and the cost base.    

Options    
synergy    
repurchase price    
redemption price    
sales load

Question No.  19    Marks - 10
Economic of scale refer to the ………….. in unit cost achieved by producing a large volume of a product.    

Options    
reduction    
increase    
keep same    
all

Question No.  20    Marks - 10
 …………….. are regarded as one of the activities the purpose of business expansion or a measure of external growth in contrast to internal growths.    

Options    
reverse takeover    
lease    
merger    
hire purchase    

Question No.  21    Marks - 10
Balanced funds have the features of    

Options    
income funds    
growth funds    
both of the above    
none of the above

Question No.  22    Marks - 10
Money collected from mutual fund is invested in    

Options    
shares    
debentures    
tax saving bonds    
all of the above    

Question No.  23    Marks - 10
In which type of lease the lease contains a bargain purchase option to buy the equipment at less than fair market value    

Options    
Operating    
Financial    
Cancellable    
non-cancellable

Question No.  24    Marks - 10
A poor credit rating indicates    

Options    
high risk of default    
low risk of default    
high creditworthiness    
high net worth

Question No.  25    Marks - 10
Credit ratings are calculated from financial history and ……….    

Options    
current assets    
current liabilities    
current assets and liabilities    
fixed assets    

Question No.  26    Marks - 10
Accurate business valuation is one of the most important aspects of M&A as valuations like these will have a major impact on the price that a business will be sold for.    

Options    
TRUE    
FALSE    
can't say    
depends

Question No.  27    Marks - 10
SPVin securitisation is    

Options    
Special purpose van    
special purpose vehicle    
special public vehicle    
specific purpose van    

Question No.  28    Marks - 10
Which lease is commonly used to acquire equipment on a relatively short-term basis.    

Options    
Operating    
Financial    
Cancellable    
non cancellable

Question No.  29    Marks - 10
Credit rating is assigned to    

Options    
company    
group    
financial instrument    
managers    

Question No.  30    Marks - 10
Which of the following is the credit rating of a sovereign entity, i.e. a national government.    

Options    
A sovereign credit rating    
bond credit rating    
corporate credit rating    
debtor credit rating

Question No.  31    Marks - 10
Portfolio management is done in    

Options    
lease    
hire purchase    
mutual funds    
syndication

Question No.  32    Marks - 10
Income funds are preferred by    

Options    
retired investors    
businessmen    
shareholders    
risky investors

Question No.  33    Marks - 10
FPOs help to    

Options    
issue shares again    
bonds again    
reduce cost    
reduce risk

Question No.  34    Marks - 10
ADR and GDR help    

Options    
get foreign investments    
reduce risk    
increase profits    
increase costs

Question No.  35    Marks - 10
Venture capital firms invest through    

Options    
shares    
cash    
bonds    
all of the above

Question No.  36    Marks - 10
Investment in mutual funds is    

Options    
common portfolio    
diversified portfolio    
single portfolio    
single security    

Question No.  37    Marks - 10
SEBI regulates    

Options    
price of securities    
buying and selling of securities    
buyers of securities    
TYPES OF SECURITIES    

Question No.  38    Marks - 10
GDR is    

Options    
global deposits record    
global depository rceipts    
gross domestic record    
gross deposit receipts

Question No.  39    Marks - 10
GDR is used to    

Options    
invest in assets    
Raise money from public    
Issue stocks    
sell products

Question No.  40    Marks - 10
Loan syndication helps    

Options    
companies    
Govt    
SEBI    
stock exchange