Why it is important
It is very important for a company to understand whether a merger or acquisition would bring along a positive impact or a negative impact. A company while acquiring should see all the aspect whether a company would gain from the merger or acquisition and if not gaining then should not get into merger. Here in this research the importance of the research is to understand whether Tata Corus acquisition brought along a financial gain and stability for the company or was a waste.
2.3 What are some current approaches to this problem?
In this research the researcher would look into analysis of pre and post book analysis to understand the impact of acquisition. There are pre defined processes for every company present today which would like to get into merger or acquisition. Every company does the pre study for merger and acquisition to find out whether the merger & acquisition is a best buy or not. There are some times when the market over evaluates the assets and due to which the pre evaluation does not serve the purpose and the result does not match the pre study.
Why is it worth solving?
It is very important to study the merger and acquisition of Tata Corus to understand whether the merger and acquisition was a positive impact on the financial and performance of the company. Also I would get an insight on how the evaluation was done and did it match with the end result. Also what are the important factors which were considered while calculating and deciding for merger & acquisition?
What is original in our approach?
In this research the sources used is secondary so the originality would be lower. But in this research I would cover about what are factors which were considered for the success of merger & acquisition of Tata Corus.
BACKGROUND
With the era of globalization, companies are growing in the current economy with the help of merger and acquisition. The expansion of operations is one of the strategies which companies are getting through with the help of merger and acquisition to remain competitive. An acquisition is also known as a form of take over where one company takes over another company. It is usually a larger company taking over a smaller company. There are many forms of merger and acquisition. One more form of merger and acquisition is when two companies combine together to form a larger company which is also a form of merger. Let us see which are the latest and largest mergers in steel industry and also see the positive and negative impact of acquisition for a company as well as for the country or the acquisition.
( http://en.wikipedia.org/wiki/Mergers_and_acquisitions)
I found this topic to be interesting as I have background of steel industry and that was the reason why I selected this topic to get a understanding on the management process and knowledge. The second reason for this research topic selection is that the steel industry is a growing industry in India and this would give me in sight of the industry as well as the concept of acquisition.
THE RESEARCH OBJECTIVES
The topic chosen for this topic is to evaluate the merger and acquisition of Corus Steel. The main objective is to understand whether the acquisition for the form was a "good buy" as a reason for their acquisition. The underlining implication was to evaluate whether the market had undervalued the assets in question. If all prospective acquirers have related perceptions about the assessment of possible targets and the market for commercial have power over is spirited, then the latent acquirers would bid up the price of targets which appeared to be bargains until the acquiring firms would, at the margin, expect to receive only.
The main objective is to evaluate the acquisition process of Tata & Corus and to understand whether the acquisition was a good buy and whether the acquisition was a positive impact to the acquiring company or gave a negative impact to the company and for the industry.
What is the concept of merger and acquisition?
What are the advantages and disadvantages pre & post acquisition.
To evaluate the acquisition process of Tata & Corus steel and to analyze the process with the help of published data and sources.
What are the factors considered while deciding on the merger & acquisition process?
LITERATURE REVIEW
5.1 Conceptual Framework for This Research Study
A literature review not only helps in attempting to collect data for the research & categories previous researches but also helps the researcher to analyze and evaluate research framework. This is the basic of what we would work on in this section.
In the past few decades, Merger & Acquisition has seen a Sharpe increase in the world market. In the late 1990's, the world had seen some unprecedented Mergers and acquisitions which even went more high in surprise in the year 2000 with a number matching 3.4 trillion dollars (Lindqvist, T. and Stennek, J. (2001)). Then the world saw a slowdown in merger and acquisition and now again the merger and acquisition market is on a rise which had reached 3.8 trillion dollars in 2006 (Havila, V & Salmi, A (2007)). Cross border merger and acquisition is also on a rise and is now covering one fourth of the global M&A market. According to UNCTAD there are a rising number of Merger and Acquisition which are seen in the past few years and are many in series and are majorly taking places in developing countries. Merger & acquisition is becoming a very fast track for entering a foreign market for development and expansion of a company in developing countries and with safe risk as the company is already present in the foreign market and has good knowledge of the market. There has been a high in the percentage of merger & acquisition taking place in between 1987 to 2008 (Hayward, M L A (2009)). The percentage has gone high from 4% to 13% in value and from 5% to 17% in the number of acquisition and mergers (Hayward, M L A (2009)).
Acquisition represents a business strategy used by companies to achieve many of the strategic objectives. Acquisition is used as a strategy to penetrate into new markets and into new geographies to gain expect technical assistance and knowledge as well as developing market for profit. In the competitive market of globalization companies need to work on different strategies for the survival and growth of the company. Companies have used merger and acquisition as a tool for this strategic move. This merger and acquisition needs to be worked properly and with efficiency before taking any decision as a poor managed merger and acquisition may lead to disappointing performance. 50% of the merger and acquisition are known to be unsuccessful (Marks, M., & Mirvis, (2001)).
Theories of Corporate Acquisitions
Lets us phase the topic of our research in a question format on why do companies acquire other companies. According to a study by Havila, V & Salmi, A (2000), 3 types of diversification was extracted or mentioned which were agency view, resource view & market power view. According to Ravenscraft, David J., and George A. Pascoe, Jr, 1989, a market power view can be defined as "thrive at the expense of non-diversified firms not because they are any more efficient, but because they have access to what is termed conglomerate power" (Ravenscraft, David J., and George A. Pascoe, Jr). According to Havila, V & Salmi, A (2000) there were 3 ways in which a company could create a power in a anti competitive manner.
According to Sirower, Mark L. and Stephen F. O'Byrne, 1998 "cross-subsidization, wherein a firm uses its profits from one market (sometimes known as "deep pockets") to support predatory pricing activities in another; mutual forbearance, where competitors meeting each other in multiple markets recognize their interdependence and complete less vigorously; and reciprocal buying, where the interrelationships among large diversified firms foreclose markets to smaller competitors" (Sirower, Mark L. and Stephen F. O'Byrne, 1998).
According to an article by Lindqvist, T. and Stennek, J. (2001), stated "When managers hold little equity in the firm and shareholders are too dispersed to enforce value maximization, corporate assets may be deployed to benefit managers rather than shareholders" (Lindqvist, T. and Stennek, J. (2001)). It is in the hands of the owner's ability to handle it agencies in an effective manner and pursue them to interest on companies profit rather than their own profit (Rhoades, Stephen A., 1993). According to some other author the interest should not be on profit but was said be on growth of the company for managers.
A resource view could be defined in words of Havila, V & Salmi, A (2000), as a gain through abnormal rent and the firm to diversify in response to an excess capacity in producing resources. This could be either tangible or intangible. According to Rhoades, Stephen A., 1998 there are 3 obstacles which arise due to the diversification which is clear from "those arising from the familiar difficulties posed by the individuality of resources; those arising from the fact that the same resources can be used differently under different circumstances, and in particular, in a 'specialized' manner; and those arising because in the ordinary processes of operation and expansion new productive services are continually being created" (Rhoades, Stephen A., 1998).
Moreover, Roll, Richard, 1986 stated that "in order to obtain expected above-normal returns from acquisitions, firms must complete acquisitions in only imperfectly competitive markets for corporate control" (Roll, Richard, 1986). Romano, Roberta, 1992 further supported a resource-based view by saying that "an acquisition can be seen as a purchase of a bundle of resources in a highly imperfect market.
By basing the purchase on a rare resource, one can ceteris paribus maximize this imperfection and one's chances of buying cheap and getting good returns" (Trade Commission, 1999). Scheffman, David T., 1993 stated that a set of acquisition strategies based on a resource-based view of the firm includes (1) related supplementary (acquire the same resources you already possessed); and (2) related complementary (acquire different resources than what the target has if they can be combined easily with the acquirer's current resources).
According to Rondinelli, D., & Black, S. (2000), abnormal returns can be created for the acquirer in combination with the target if the synergistic relationship is not easily copyable by competitors. Moreover, Saha, A., & Simon, (2000) found that "different but complementary resource flows may be more likely to create a unique and private synergy than similar resource flows" (Saha, A., & Simon, (2000)).
In sum, a firm's unique, rare and valuable resources captured and accumulated through acquisition strategies, should be matched with its suitable organizational form in order to realize the maximum strategic effectiveness of a united company.
Schweiger, D., & DeNisi, A. (1991) identified three clusters of theories in corporate acquisitions, including: the strategy model, the product/market portfolio model, and the risk/return model. First, Schweiger, D., & DeNisi, A. (1991) argued that the most general and most established set of theories stems from notions of corporate strategy and corporate planning based upon some notable individuals, such as Adrews, Ansoff, and others. The author indicated distinctive characteristics of the strategy model by saying that, "the key relationship stressed in the strategy model is the relationship between a business enterprise and its environment" (Schweiger, D., & DeNisi, A. (1991)).
Strategic fit model is the most commonly and well known concept in strategic management. The model reveals that a company's strength and weakness first needs to be identified for different functions is the time when the top management is able to take a decision on the company's future needs and the potential of diversification through acquisition or merger. This model also states that the prime objective is not to diversify through acquisition but to establish measures of product & market attractiveness. The prime objective is also to find out the unique strength which can be exchangeable with the other market. So this model basically indicates that a company can also enhance and extend the capability in to the new market by acquisition (Seth, A., Song, K., Pettit, R., & Richardson, R. (2001)).
The second model discussed is the product / market portfolio model which emphasizes on the long term economic stability and also works on strengthening the portfolio of the business in terms of cash flow balance. This model was more commonly known as the product / market portfolio model by Boston consulting group.
The major difference which is identified when compared to the strategy model is that the unrelated diversification as it focuses majorly on the economies of scope. Thou both these model which are strategy model and product / market model adhere to manage to cover the risk which is accompanied with acquisition investment (Seth, A., Song, K., Pettit, R., & Richardson, R. (2001)). So a third model which is the Risk / Return model is developed and is utilized by the investor before operating execution.
The most distinctive feature of this model is the risk return tradeoff for the capital asset. This is also the potential merger and acquisition plan for a diversification and for the decision making.
5.2 Integrated Overview of Research on this Topic
According to Smith and Kim (2006, 127), a national pride plays a vital role in influencing the cross border merger and acquisition and had impacted largely between 1990 and 2007. According to Lindqvist, T. and Stennek, J. (2001) "despite a decade of research, empirically based academic literature can offer managers no clear understanding of how to maximize the probability of success in acquisition programs" (Lindqvist, T. and Stennek, J. (2001)). Understanding of the concept and source and determining of the value is the most important cause for any successful or failure of merger and acquisition deal. Strategic management has point out many factors which are in control of the management for making a merger and acquisition a success (Pfeffer, J (2002)). One of the commonly used strategic attempts is to differentiate between the different types diversification strategies like related Vs unrelated diversification. This is one of the crucial factors which determine the post acquisition performance. The tool which helps the financial economist is the market for corporate control as stated by Pfeffer, J (2002). The core argument of this "market for corporate control" paradigm is that acquisition activities are viewed as "contests between competing management teams for the control of corporate entities" (Gugler, K., Mueller, D., Yurtoglu, & R., Zulehner, C. (2003)).
One of the major arguments which is in place is the corporate control paradigm in which the economic value is created through merger and acquisition by deciding on the market characteristics and competitiveness. Thou the above two approaches are not very clear on explaining the disappointing factors in mergers and acquisitions. So many researchers have started looking forward for crucial variables which are related to disappointment of end results by looking at the past example of unsuccessful mergers & acquisitions and investigating a relationship between the post acquisitions integration and post acquisition performance. According to Havila, V & Salmi, A (2000) the initial notion about the post acquisition integration is the most vital factor for the success of a acquisition process. It was made very clear that identifying the value creation from acquisition is a prime cause for realization of synergies in a capital market expectation (Billett, M. T., King, T.-H. D., and Mauer, D. C. (2004)), but is also a process which leads to realization of predictable synergistic profit to be realized (Banerjee, A. and Eckard, E. W. (1998)). In sum, the key topic of this research paradigm is that one of the most crucial issues to be dealt with in corporate acquisitions is the inquiry into how the acquirer and target firms are to be integrated in the post-acquisition management process.
Gaps in the Literature
It is very important for a research to oversee the limitation which could arise while doing a particular research. This helps the researcher in avoiding unnecessary wastage of time and money in achieving something which is not possible in advance. In this research the limitation which the researcher oversees could be that the responses received from interviews would be filled with Bias as respondents would offer or give information as their opinion rather than facts and many of them would portray their company's data in a positive manner. Also the data collection method would be a hindrance.
Definition of Terms
M&A can be defined as a merger & acquisition where one company take over partially or fully another company or it operations. A merger & acquisition is a form of investment for the taking over company for expanding its business horizon. An M&A is in simple term could be a takeover of company partially or fully for the growth or sustainability for a company.
METHODOLOGY
6.1 The Research Question
What do you mean by merger & acquisition
What are the different factor attached to M&A of Tata Corus
How does M&A impact the business climate of a company
Does the M&A or Tata Corus bring positive impact on financial aspect for the company
What are the various factors which are considered while deciding on a Merger & Acquisition process?
6.2 Research Philosophy and Approach
Research Philosophy
Research philosophy deals with the process in which the research process is to be followed. The researcher has selected the Research Onion as the strategy to be followed for the research. The various criteria of the research depict the research onion to follow the research approach to follow the philosophy of Interpretivism. The main objective of the research is to evaluate the N&A of Tata Corus in the present scenario. According to Remenyi et al (1998:35), "the details of the situation to understand the reality or perhaps a reality working behind them". According to Saunders, 2003, the researcher is keen on selecting the philosophy of positivism because of "that the social world of business and management is far too complex to lend itself to theorizing by definite 'laws' in the same ways as physical sciences". According to Saunders et al (2003), a research turns to be generalized if the term complexity is reduced to a series of laws.
Research Plan
The research plan selected is the functionalist paradigm as stated by Saunders et al, 2003 which look at the evaluation of a process within a industry and the recommendation ould be shown as a improvement.
The research in this condition starts with literature review and this emphasis on the M&A industry and the terms involves in the research of M&A for Tata Corus. This helps the researcher to understand the critics of M&A. the approach which would be used and selected by the researcher is the deductive method which would form the basis of primary research.
Research Design
"Research design is the detailed blue print used to guide research study towards objectives" (Kumar, 2005:67). It contains clear objectives derived from the research questions and provides an overall guidance for the data collection and analysis. The importance of research design is due to the fact that it forms as a critical link between the theory and argument that informed the research and the empirical data collected (Nachmias & Nachmias, 2008) A choice of research design reflects decisions about the priority being given to a range of dimensions of the research process (Bryman & Bell, 2007), which will have a constant influence on all areas including sampling and data analysis. Robson (2002) stated that three layers- research strategy, research choices and time horizon forms the basis of research design.
Researcher has selected a cross sectional design for this research. This is justified with the fact that the research is carried out at a particular point of time. The data collection for analysis would be for the current period and where the perception of various researchers may differ from each other. The basic objective of this research is to see the effect of this acquisition on grounds of current phenomenon and the implication brought about due to this activity on the players attached.
Research Onion is the data compilation method which is used as the underlying process. According to Saunders, 2003, the outer layer needs to be peeled before you come to the conclusion for any research or to get to the core of the issue or onion. So let's more to the research onion and peel layer by layer the process which would be followed for achieving the set objectives.
In this research the case study method would be used for achieving the objective of the research. The researcher has decided on selecting this approach as the nature of the research is descriptive and a primary research or field work would not let us gain the facts but would have only provided opinion for the research. This research would require number calculation and facts & figures.
Data collection
The Data collection tool for this research would be Secondary research. Let us see the process which would be followed for collecting data.
Secondary Data
Following are the various tools used for collecting the secondary data for the research.
Documentary secondary data
Written materials: data for the research would be extracted from various books of accounts of the company and the conceptual frame work would be collected from various academic books. Details would also be extracted and collected from different standard sources of secondary data like news paper (for collecting reviews of different authors on the same topic). Some of the details would be collected from web site of the company (Saunders, Lewis and Thornhill (2007:248-252)).
Data analysis
The data analysis tool selected for this research would be Microsoft Excel. The use of different statistical tools would be a part of analysis and these statistical tools would be used with the help of Microsoft excel. The calculations would be done in Excel and the findings would be presented in the form of graph and tables.
7.ACTION PLAN
Activity
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1. Completed Proposal and Send to DR.JORGE GUIRA
2. Received Comment (Meet With Professor to Adjust and Finalize Proposal)
3. Finalize Objectives with DR.JORGE GUIRA
4. Draft Introduction, Literature Review and Research Methodology
5. Meet With Professor and Adjust and Finalize Chapter 1, 2, and 3
6. Gather data
7. Analyse Data with DR.JORGE GUIRA
8. Discuss Results and Findings with Professor
9. Discuss Recommendations with DR.JORGE GUIRA
10. Implement Discussions into Dissertation
11. Finalize and Submit Dissertation
