Case Study Of JK Cement

Plan objectives:

The basic objective is to acquire a high growth player in the cement industry. J K Cement offers an opportunity to consolidate the current UltraTech into a single, more successful, brand. Ultratech offers a sophisticated and industry leading cost leadership, access to customers, and distribution channels. An acquisition of Shree cement would plug the J K Cement products with UltraTech. This could lead to strong synergy through the coupling of the J K Cement rapid growth and UltraTech efficient distribution and capacity networks. This will also help UltraTech diversify its portfolio. More specifically, we expect sales of UltraTech to grow for the next five years as a result of UltraTech distribution network. Negotiation
This is generally the longest part of any acquisition process and requires significant amount of time for negotiation. Both UltraTech Cement and JK Cement would negotiate the scope of the representations and warranties. Here, UltraTech’s goal is to get comprehensive representations and warranties because they are a valuable source of information about what they are purchasing and form the basis for their right to indemnification for any problems or unforeseen risks and constitute part of the closing conditions.
b) Closing Conditions: Each of the parties in the acquisition process requires that the other party should abide by certain conditions before the transaction is closed. Until the conditions are satisfied, the transaction is not closed. But a party can always waive its own closing condition.

c) Definitions: In any acquisition agreement, defined terms are required for clarity and structure. The defined terms that are set out are often heavily negotiated. This is because they help mitigate the risks of the parties.

d) Indemnification: While the warranties and representations provided by JK Cement in an acquisition agreement create the basic structure for allocating risk between themselves and UltraTech, the basic purpose is to strengthen the indemnification part behind those warranties and
UltraTech limited here, request at least three to five percent of historical financial data which should be normalised for nonrecurring gains, losses and expenses.

g) Deal structuring: It includes the gathering of information by JK Cement of the acquisition vehicle, post-closing organization, legal form of selling entity, form of payment in cash or stock or debt, form of acquisition and tax and accounting considerations of UltraTech Cement limited.

h) Financial plan: It includes the total consideration which consists of cash, stocks and new debt issues. It also includes Total Enterprise value which consists of Total consideration and market value of UltraTech Cement Limited’s debt assumed by JK Cement Limited. Lastly it also values the net purchase price.

Tactics

Friendly acquisition is the one in which the management of the target company (J K Cement) agrees to be merged or acquired by any other company (UltraTech Cement). In this case, generally the acquiring company rolls out a public offer in cash or stock terms and the target firm’s management publicly approves the buyout with the consequent approval from the shareholders of the target