09-01-2014, 12:50 PM
Impact of mergers and acquisitions on the financial performance of Tata Group of Companies
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Executive Overview
The era of globalization which resulted in the increase of competitiveness has led to the increase in mergers and acquisitions. Mergers and acquisitions have become a popular means for major companies to rapidly access new markets, assets and capabilities. Indian companies too have significantly increased their Mergers and Acquisition activities over recent years.And Indian companies are using Mergers and acquisitions as a strategy to set up global footprints all over the world. Mergers and acquisitions strategy used by Indian companies are mainly driven by the desire for growth. Indian companies are leveraging their low-cost advantage to create efficient global business models and they are seeking entry into fast-growing emerging markets and market-share in profitabledevelopedeconomies. Global growth will continue to be a strategic focus for many Indian companies and M&A is a legitimate strategy to achieve this. However, sustainable growth also requires an emphasis on operational synergies. This requires adequate attention to organizational models that will enable effective and integrated operations across merged entities and geographies. Thus mergers and acquisitions has been an effective strategy used by Indian companies to enhance their financial performance by achieving the post mergers operational synergy.
Abstract :
The current scenario of the world is about Glocalization where the companies have to explore the domestic market as well as the International Markets. And thus Mergers and acquisitions have become one of the major force in the changing environment. The policy of liberalization, decontrol and globalization of the economy has exposed the corporate sector to domestic and global competition. It is true that there is little scope for companies to learn from their past experience. Therefore, to determine the success of a merger, it is to be ascertained if there is financial gain from mergers. It is very important to study the liquidity performance of merged companies to test whether those companies have sufficient liquid assets to meet its current obligations. One of the critical factors which is affecting the Organization in International Market is Recession. In the Competitive market for attaining the Success, one needs to be a global player. A company can assess its potential only in the Global Environment, which provides prospects for exploring new perspective and transforming entities.This paper covers the Strategy of acquiring the Cross Border merger. In the Cross border Merger; the Acquirer has to facemany problems such as Downsizing, Leveraged and change in Corporate Culture which affects the whole business of that Organization.
INTRODUCTION
Mergers, acquisitions and corporate controlhave emerged as major forces in the modern financial and economic environment. Mergers, as a source of corporate growth, have been the
subject of careful examination by scholars. The mergers and acquisitions in India have changed
dramatically after the liberalization of Indian economy. The policy of liberalization, decontrol
and globalization of the economy has exposed the corporate sector to domestic and global competition. Low cost products, with good quality have become essential for a company to survive in the competitive market. Factors like low interest rates, cheap labour, and liberal government policy, have helped the Indian corporate sector to reduce their cost. It is in this context that corporate sectors view mergers for further cost reduction through technology advancement or to make their presence felt in the market.
NEED FOR THE STUDY
Merger is a routine event in the changed economic environment. Post‐ merger financial gain will be generated only when the two companies are worth more together than apart. Therefore, there is a need to study the wealth enhancement with respect to mergers, which can be helpful in assessing the success ofmerger. Many studies have been conducted to analyze both acquiring and target companies in the pre‐merger period and more specifically, acquirer companies in the pre‐ and post‐merger periods. It is equally important to analyze from the view point of the acquirer and target companies in the pre‐ and post‐merger periods also. The companies’ financial position is bounded with their solvency positions. A company is financially sound if it is in a position to carry its business smoothly and meet its current obligations. Hence an attempt has been made to study the short term solvency position i.e. liquidity position of both acquirer and target companies in the pre‐ and post‐merger period.
Statement of Problem:
Recent Surveys have shown that many international Mergers & Acquisitions have been failures. There are classic examples of large companies having failed due to the wrong Mergers & Acquisitions strategy and profitable companies having got into rough weather because they acquired a wrong company. So is the strategy adopted by Indian biggest conglomerate group i.e., Tata group of setting up global footprint all over the world with these inorganic growth strategies? And whether these mergers and acquisitions will help the companies in improving their financial returns and leverage on the huge investment that they had done for acquiring those firms
Findings:
Indian companies have been active and visible players within this new M&A trend. According to Accenture’s analysis of data from Thomson Financial, as many as 543 M&A deals were completed by Indian companies both at home and abroad in 2007, with a total value of US$ 30.4billion. This represents a compound annual growth rate (CAGR) of 28.01 percent in deal value over the period 2000-2007. Thus the strategy used by Tata Group was in accordance to the changing economic environment.
TATA GROUP OF COMPANIES
One of the India’s largest business groups in the country. It has about 96 operating companies. It has diversified business in 7 sectors. And the combined Revenues are equivalent to 5.3% of India’s GDP..Its 27 publicly listed companies have a combined market capitalization which is the 2nd highest among all business houses in India. It is the largest employer in private sector over 300,000 employees. It has a shareholder base of over 2.9 million. It is Operating in over 80 countries. And its Products and services is exported to 85 countries
Tata is a rapidly growing business group based in India with significant international operations.. The group employs around 350,000 people worldwide. The Tata name has been respected in India for 140 years for its adherence to strong values and business ethics.
The business operations of the Tata group currently encompass seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals.
The group’s major companies are beginning to be counted globally.
Considering two of the largest mergers of TATA Group
-Tata Steel became the sixth largest steel maker in the world after it acquired Corus.
-Tata Communications is a leading global provider of a new world of communications. With a leadership position in emerging markets, Tata Communications leverages its advanced solutions capabilities and domain expertise across its global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers.