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Abstract

The Mergers and Acquisitions Activity take place in wide range. Mergers and Acquisitions are growing rapidly with change in globalisation The Success of merger in mergers and acquisition depend on well structure and organized firm. In finance the main problem in mergers and acquisitions is that after acquiring such company, the company can loose its dignity and its better performance. The impact of mergers and acquisitions reflect the financial position of company.

The Research is based on extensive literature review to identify the financial position and Profitability of Hindustan Unilever Ltd after the series of mergers and acquisitions. Through this research the shareholders value and market share of the company has been analyzed whether they are increasing or decreasing. The Acquisition strategy of Hindustan Unilever Ltd is also analysed in this research.

In Particular it was found that the financial position of Hindustan Unilever Ltd goes down after the series of mergers and acquisitions. The Acquisition Strategy of Hindustan Unilever Ltd fails after the series of mergers and acquisitions. The company’s value is not adding to its shareholders value. The market share of Hindustan Unilever Ltd goes down.

Table of Content

Page No.

Abstract

I

Acknowledgment

II

Chapter - 1 : Introduction

1-4

1.0

Introduction

1

2.0

Research Context

1-2

3.0

Statement of Problem

2-3

4.0

Methodology

3

5.0

Research Objectives

3

6.0

Research Approach

3-4

Chapter - 2 : Literature Review

5-25

1.0

Introduction

5

2.0

Reviews on Mergers and Acquisitions

5-8

2.1

General Reviews

5-7

2.2

Growth of Mergers and Acquisitions Activity from past

7-8

3.0

Analysing the Acquisition Strategy of the Company

8-12

3.1

Reviews on Acquisition Strategy

8-9

3.2

Process of Strategic Planning

10-11

3.3

Strategy Methodology

11-12

4.0

Analysing Shareholders Value would Increase or Decrease

12-14

4.1

Research Under Indian Companies

12-14

4.2

Types of Mergers and Acquisitions

13-14

5.0

Analysing the financial position and Profitability of Company

14-25

5.1

Reviews On Ratio Analysis

14-15

5.2

Motives of Mergers

15-16

5.3

Theories on Mergers and Acquisitions

16-20

5.4

Failure of Mergers and Acquisition

21-23

5.5

Movement of Mergers Waves

23-25

Chapter - 3 : Hindustan Unilever Ltd

26-32

1.0

Introduction

26

2.0

Company overview

26-29

2.1

Past milestones

26-27

2.2

Present stature

28

2.3

Platinum Jubilee year for Hindustan Unilever Ltd

28-29

2.4

New Corporate Identity

29

2.5

Hindustan Unilever Brand

29

3.0

Corporate Strategy

30

3.1

Vision

30

3.2

Mission

31

4.0

Management Structure

31-32

5.0

Conclusion

32

Chapter - 4 : Methodology

33-43

1.0

Introduction

33

2.0

Hypothesis of Research

33

3.0

Research Objectives

34

4.0

Research Methodology

34-35

5.0

Research Design

35-36

6.0

Research Approaches

36-37

6.1

Qualitative Research

36-37

6.2

Quantitative Research

37

7.0

Sources Of Data

37-38

7.1

Primary Data

38

7.2

Secondary Data

38

8.0

Tools and Techniques Used

39-43

8.1

Ratio Analysis

39-41

8.2

Value Addition Method

41-42

9.0

Utility Of the Study

42-43

10.0

Limitation to Study

43

Chapter - 5 : Analysis and Interpretation of Result

44-74

1.0

Introduction

44

2.0

Analyzing the Financial Position Of Hindustan Unilever Ltd

44-64

3.0

Analyzing the Acquisition Strategy Of Hindustan Unilever Ltd

65-69

3.1

Acquisition Strategy Of Hindustan Unilever Ltd

65

3.2

Strategy Of Hindustan Unilever Ltd in Present Stature

66-67

3.3

Interview

67-69

4.0

Analyzing Whether Shareholders value increasing or decreasing

69-72

5.0

Analyzing Market Share of Hindustan Unilever Ltd

72-74

Chapter - 6 : Major Findings, Conclusions and Suggestions

75-82

1.0

Major Findings of Research

75-79

2.0

Conclusion From Research Made

79-80

3.0

Suggestions

81-82

References

83-87

Bibliography

88

Appendix

89-94

Chapter 1

Introduction

1.0 Introduction

This chapter provides the Research context, Statement of problem, Methodology, Research objectives and Research Approach. This chapter provide a brief detail of research work.

2.0 Research Context

Mergers and Acquisitions are growing rapidly with change in globalisation. The Mergers and Acquisitions activity take place in wide range. The fusion of two companies is known as merger. The company which have a management control over other company through acquire power denotes as Acquisition. In short period of time the global market changes rapidly which it affects the global scale that increases global economic competition.

In 1991 United States have 3600 mergers, acquisitions and divestiture which increase in the year 1999 as 8700 mergers, acquisitions and divestiture. Due to change in global market the company’s adopt different business strategy to increase the company’s profitability, improve competitiveness strategy and reshape the company future market (E.P.Halibozek, G.L.Kovacich, 2005).

In Technology industry Microsoft Crop. Acquire Yahoo Inc. for $40,843 million. In business service industry Reed Elsevier Group PLC acquire ChoicePoint Inc. for $4,268 million. In Electronic and Electrical equipment Investor Group acquire Axcelis technologies Inc. for $528 million. In Transportation and shipping industry Mobile Mini Inc. acquire Mobile storage group Inc. for $702 million.

In Wholesale trade durable goods Nucor Crop. Acquire SHV North America Crop. for $1,440 million. In transportation Equipment Dorel Industries Inc. acquires Cannondale Bicycle Crop. for $200 million. In 1993 US food marketing system increases from 3% to 11% in 1994 which ranked second among all wholesalers. (The Dealmaker’s Journal, 2008).

The Success of merger in mergers and acquisition depend on well structure and organized firm. Sometime if the acquisition went wrong then stakeholder value will completely destroy and will not add company’s value to its shareholders. Destroy in value affect the main stakeholder of company that is manager and shareholder.

3.0 Statement of Problem

In finance the main problem in mergers and acquisitions is that after acquiring such company, the company can loose its dignity and its better performance. The second problem is that after merging company’s value is increasing or decreasing. The third problem is whether shareholders value is increasing or decreasing after the series of mergers and acquisitions. If the value is not adding then investor is unhappy with company’s acquisition strategy.

The forth problem which is consider as whether the market share increases or decreases after the series of mergers and acquisitions. If the market share drops then the small and big competitor will take the top position in a market. The fifth problem is whether the acquisition strategy is right or wrong. If the acquisition strategy went wrong then company has to face huge loss and which result in shutting down or winding up of company’s business.

According to Andrew Dolbeck in first half of 2007 the mergers and acquisitions process gone and there is no sign of coming back in first half of 2008. The reason may be tightening of credit market, crash in mortgage market and increasing lenders caution (Weekly Corporate Growth Report, 2008). The mergers and acquisition is not always as a result of success. There are many companies which merge with a motive of success but after some period it becomes unsuccessful.

The impact of mergers and acquisitions reflect the financial position of company. The main drawback of acquisition is difficult to quote the acquisition price as due to lack of financial information. The second drawback is different tradition and culture between two companies. Different culture sometime creates a problem in mergers and acquisitions.

4.0 Methodology

The researcher use both Qualitative and Quantitative analysis. The Qualitative analysis is done from conducting interview with Hindustan Unilever Ltd manager and employees. The question which is asked for interview is collected from the survey. The primary data is collected from Qualitative Analysis. The Quantitative is done from referring books on mergers and acquisition, newspaper like financial times, Journal, Articles and Annual report of Hindustan Unilever Ltd. Through Quantitative analysis the secondary data is collected. The secondary data which is used in this research is mainly taken from Annual report 2007 of Hindustan Unilever Ltd.

5.0 Research objectives

  • To analyze the acquisition strategy of the company.
  • To analyze the financial position and profitability position of the company.
  • To analyze whether shareholders value would increase or decreasing.
  • To analyze the market share of the company.

6.0 Research Approach

In this Research work there are six main chapters which give a detail work of researcher.

  • The First chapter contains Introduction which provides Research Context, Statement of Problem, Research Approach and Methodology. This chapter provides a brief detail of research work.
  • The second Chapter contains Literature review which provides review on mergers and acquisitions, Analyzing the acquisition strategy of company, Analyzing the shareholder value is increase or decrease and Analyzing the financial position and profitability of company. This chapter provides the detail subject which is exposed in this research.
  • The Third chapter is Company Profile which contains Company Overview, Corporate strategy of Hindustan Unilever Ltd, Management Structure and Conclusion. These chapters highlight the reason for its merged.
  • The forth chapter is Research Methodology which contains Hypothesis of research, Research Objectives, Research Methodology, Research design, Research approaches, Sources of data , Tools and Techniques used, Period of study, Utility of the study and Limitation to study. These chapters provide both quantitative and qualitative Analysis.
  • The Fifth chapter is Analysis and Interpretation of result which contain the detail analysis of the objective of Hindustan Unilever Ltd. This chapter provides the detail and calculation of the analysis.
  • The sixth chapter is major finding conclusion and suggestion which contain Major Findings of Research, Analyzing the financial position of Hindustan Unilever Ltd, Analyzing the Shareholder value increase or decrease, Analyzing Market share of Hindustan Unilever Ltd, Conclusion from Research Made and Suggestions. This Chapter provides the finding from chapter 5 and the conclusion of whole research which is made and some necessary suggestion is provided for the removing the barriers.

Chapter 2

Literature Review

1.0 Introduction

This chapter will provide the general Review on Mergers and Acquisitions, Past Activity of Mergers and Acquisitions, Analysis of Acquisition Strategy, Analysis Shareholder value increase or decrease after mergers and acquisition series, Analysis the financial position and Profitability of Company after mergers and acquisitions series. Through mergers and acquisition activity business are entering in global world and bringing reasonable changes in business environment.

2.0 Reviews on Mergers and Acquisitions

2.1 General Reviews

Merger is a tool were company used to identify the market competition and helps in reducing competition in a market. It also helps in cost cutting that is cost cut leadership. A merger helps company in making long term profitability and expanding their outbound operation. Mergers refers to increase the profit of business and to survive the business in long term. Acquisitions refer buying one company by another company.

Normally Large firm purchase the small firm. Acquisitions play a vital role in programming or organizing the staff of company which can be called rapid growth. Company adopt acquisitions strategy when there is a huge risk. In mergers and acquisitions the transaction took place in a large or small form. The Large transaction will transfer important value and valuable effect of thousand of employees and hundred of thousand of investor. The small transaction include sale of business which is closely held the divestitures of business unit. In United state the volume of mergers and acquisitions exceeded up to $1 trillion in 1998. This was the benchmark every year since.

Business Development strategy was updated manually by most of company. As there is limited options for investment, therefore they choose other option like build (Internal Development), Ally (Partnership), Buy (Acquisition). Mergers and acquisitions help many companies to make their product line more extensive.

Mergers are those who acquire or buying the sellers firm through absorbing assets and liabilities. It’s a combination of two or more companies or joining of two companies to become one company through exchange of both companies share or purchasing of assets. Acquisitions refer the purchase of entire company such as plant and machinery etc. For example In 2005 an acquisition made by Procter and Gamble purchase the Gillette company, Inc. Acquisitions making company purchase the assets or shares of Sellers Company by making payment through cash, securities or other assets value to the seller.

Merger is one of the best ways to make the new market in more effective and efficient way. It can be done by adding valuable value to new product line, new distribution and supply channel. Through mergers and acquisitions the acquiring company can access the current “knowledge of worker” which helps to get the intellectual property. Venture capital funded firm realized 92% of liquidity through mergers and acquisitions and rest 8% of liquidity were realized from Initial Public Offering (IPO).

Fig 1.1 shows how mergers and acquisitions is important for company. Through out 1995 to 2004 the company realize their liquidity via mergers and acquisitions. There are several companies likes Yahoo, Cisco and Google who achieve goals through acquisition as a mean to obtain employees value towards product and intellectual property. (Andrew J. Sherman, Milledge A. Hart, 2006)

(Andrew J. Sherman, Milledge A. Hart, 2006)

2.2 Growth of Mergers and Acquisitions Activity from past

In 1980s, the workforce in US was affected by twenty five percentages through mergers and acquisitions activity. If the Percentage of activity will continue in recent phase, then in the end of decade all public companies will listed under new management or ownership. As the actual share value is paid by bidders the financial cost of acquisition will be understate and they don’t take some expenses under consideration such as advertising cost, golden parachutes, expenses of unsuccessful bids and payment for senior management. (Fulmer, 1986, Mc Manus, 1988)

Many Multinational Companies are spending huge expenses on advertising and in public campaigns to take over major deals. The major deals between Dixon and Woolworth takeover took place. The company spent huge expenses on advertising and for public campaign which affect the financial position of Dixon’s company. In 1987 the huge bid was place by BTR against Pilkingtons. After two month Pilkingtons made a good stand by setting up International news agency which works for twenty four hours.

They spent huge expenses on advertisement and made some expensive public campaign. In 1988, the Philip Morris paid $ 12.9 billion for kraft food which recorded a largest acquisition in a year. In the same year Atlantic Nestle paid £ 1.8 billion for Rowntree – Mackintosh which recorded as huge earning. From 1991 to 1993 through joint venture KPMG International recorded good value in three years. Investment pattern is greatly affected in Europe by social, political and market change.

Through out these periods UK and USA make a target of making huge investment. China and Russia is also making huge foreign investment through social and political event. For example Wingmerrill international took china’s Jiangsu National Gas Power for $1689 million which recorded 70% of china national gas power sold to wingmerrill international. (Tuner, 1987, Dealwatch, 1997, Sue Cartwright, Cary L. Cooper, 1996)

3.0 Analysing the Acquisition Strategy of the company

3.1 Reviews on Acquisitions Strategy

To analyse the acquisitions strategy company build screening or Monitoring Acquisitions Strategy. Such strategy is based on monitoring the candidate of the company and analysing the potential of company. Operating synergies and cost saving are concerned in mergers and acquisitions. Due to lack of capabilities and lack of companies strategy will cause failure in mergers and acquisition. Acquisition strategy helps the company to change its position to become more competitive in market place.

As acquisition strategy is used for the company growth in mergers and acquisitions (Oren Fuerst, Uri Geiger, 2003). To achieve organisational goal its necessary for the company to have a strategic planning. A strategic planning refers to have a proper planning, rules and guideline of the company for achieving the objective of the company.

The aim of company can achieve with strategic planning through acquisition strategy. A strategic planning approach requires corporate objectives should be identified; Value of acquisition should be decided and selecting candidates through mechanism of screening acquisition. (Brain Coyle, 2000).

The various level of strategic planning may be different in different level. The larger firm and smaller firm has different strategies planning. The various strategic planning levels are as follow (S.F.Reed, A.R.Lajoux, 1998)

  • Enterprise Strategy: - The strategy is made to expand the enterprise through horizontal acquisition that is by making strong place in competitor market. The enterprise strategy is made by the board of director of the enterprise. They make a choice of temporarily contract by selling its major line through share, product line and so on to relocate the cash flow in high yield from lower yielding.
  • Corporate Strategy: - Corporate strategy formulate in making new investment for maximizing long term return. The corporate strategy is formed under common management. Long term return can only be possible by reallocating the cash flow through corporate strategy.
  • Group Strategy: - Group Strategy are formulate under single corporate group or operating group. Group strategy formulates the strategy for new internal and external investment. Group strategy allocates cash flow and then reallocate for making new investment or business unit.
  • Business Unit Strategy: - Manufacturing and Marketing having some commonality for product line. Acquisition for new product line could be realized from reinvested cash flows.
  • Product line Strategy: - Product line strategy helps in bringing new product in a market. The product line strategy give a detail analysis of competitor product. Analysing the competitor product and then placing new product in a market makes in increasing the company growth. The product line strategy helps to replace the old or immature product by new product in a market.

3.2 Process of Strategic Planning

The company goal for longer term can be converted into shorter term. Through strategic planning firm strength, weakness, opportunities and threats can be identified and which can be improved. The process of strategic planning takes place as follows (ICFAI, 2005)

  • Assessing and Determination: - An organisation faces many issues like employees attention and efforts towards organisation. Organisation task should be identified through organisations specific issues and choice, then the specific task should be assessed and determine. The organisation roles and profiles should be clearly clarified and developed. To make a right decision for achieving goal it is necessary to collect all information and data which is related with organisation success.
  • Focusing on mission and vision: - organisation goals can only achieve when strategic planning has certain mission and have good vision. Focusing on vision means focusing on the particular area were the organisation deals with certain problems and summarized the success of organisation. Focusing on mission means the organisation should have one mission statement which contains the main activity and method to fulfil a specific purpose like why the organisation exists and what it seek to accomplish. The mission statement contains the detail of business which the organisation deals with. The mission statement contains the value of organisation such as rules and regulation of organisation to guide the employees for achieving goals.
  • Analysing the situation:- The current and future situation should be carefully analysed. The strategic planning should be flexible so that it works when there is change in future environmental. Organisation strength and weakness should be identified and the performance should be analysed through different situation.
  • Determining strategies, goals and objectives: - After confirming mission statement and analysing the situation certain strategies should be determine for achieving goal and objective. These can be obtained by group discussion and interview. The strategies should be simple easy and clear. In an organisation strategic direction, there should be specific objective with general strategies and long range of goal.

3.3 Strategy Methodologies

Under Mergers and Acquisitions, the companies successful or failure depends when they pass through acquisition process. Strategic planning should be properly planned for making acquisition as a strategy. So if the company goes for a wrong strategy will end up with a big failure resulted in huge loss and shutting down of business. The organisation success can be determined through adopting different strategy which is as follows (ICFAI, 2005)

  • SWOT Analysis - SWOT Analysis helps the organisation to make strategic planning were manager can take valuable judgement. SWOT Analysis helps the manager to think in strategic way and helps to identified and measure the organisation strength, weakness, opportunities and threats. By making strong strength and analysing weak position through spreading more opportunities by removing all threats for achieving organisational goal.
  • GAP Analysis - Organisation can maintain a gap between goal and projection. Through GAP Analysis the capabilities of existing firm can be analysed for making such firm as future firm.
  • Competitive Analysis - The demand and supply condition can be analysed through competitive analysis. The position of competitor and study of competitor market and competitor product and service can be analysed through competitor analysis. The cost, new product, new strategy and new demand and supply are analysed through strategic planning.

In order to finding out Hindustan Unilever Ltd (HUL) acquisition strategy was right and wrong certain method has been used like Value Addition Method, HUL Abnormal return and Cumulative Abnormal return of the company.

4.0 Analysing shareholders Value would increase or decrease

4.1 Research under Indian Companies

One of the most extensive researched in Indian companies shows that mergers and acquisitions leads to increase in stock prices and there may be increase in cash flow if the stock market are anticipated correctly through acquisition. This implies that shareholder value would increase after mergers and acquisitions activity. Due to realization of synergistic benefit the takeover are motivated to improve the performance of the company which reflects the share price.

Nirma Limited company share price started rising after 1994 for both high and low. In 1996 Nirma acquired stake in Nilimita Chemicals. As the share price was in downward trend. In Acquisition period there was nothing significant movement of six month share prices of both pre and post merger. In 1997 three mergers occurred in Nirma helps to stop the downward trend of share price (Rabi Narayan Kar, 2006).

HDFC bank showed upward direction of share prices in 1995. In 2000 HDFC bank merged with Time bank. From this shareholder gain wealth as the argument of share prices increased in the post merger period. In one of research shows that in both pre and post six months average share prices showed that price have improved after merger took place. After Mergers and Acquisitions of HDFC bank the shareholder enjoy gain at the merger movement (Rabi Narayan Kar, 2006).

Reliance Industries Limited, in 1998 prices of both high and low goes upward direction. The period between 1995 till 2000 the price of share was high due to acquisition took place. Mergers and Acquisitions contributed positively toward the movement of share price. There was a positive note for shareholder under reliance acquisition strategy for both high and low prices (Rabi Narayan Kar, 2006).

There was some other research which is based on UK and US Company were the shareholder of target firm received positive wealth gains. Kennedy and Limmack 1996, Higson and Elliok 1998 for UK show that there is significant and positive gain for shareholder. There was unclear in return at the time of Bid announcement that the return at the time to shareholder may be less positive or negative return or zero return. (Rabi Narayan Kar, 2006).

4.2 Types of Mergers

In mergers and acquisitions the mergers are classified into three types: horizontal, vertical and conglomerate. The three types of mergers have different role in mergers and acquisitions. The detail explanation for the types of mergers is as follows:

Horizontal mergers

Horizontal merger refer as one firms operating with another firms operating and completing the two firms in the same type of business. The main drawback of horizontal merger is that the firm which has large scale production are benefited and the firm which has small production will not get benefited. Horizontal merger helps to produce same type of product or service in the same geographical market. As a result there is a sign of decrease of firm in a industry. If the numbers of firm decrease then it leads to monopoly. The monopoly can conclude monopoly profits.(Buono and Bow ditch, 1989)

Vertical mergers

In different stage of production or value chain leads to occur vertical merger. Backward integration or forward integration is the main aim of vertical merger under mergers and acquisitions. Many expenses are eliminated that is the contracting cost, advertising cost, payment collection cost and other cost which comes under those firm which has the same transaction. As a single flow of information the production and innovation ideas may be more efficient.

Entry barriers could rise as there will be anticompetitive effect due to increase in monopoly market. This leads to incomplete information to investor on its qualification or lack of experience which raise the capital cost to firm already in the industry. In one stage the new firm will rely to existing firm for expanding in lower cost and in other stage the new firm could enter only when the industry is not integrated.(Stocking, 1955)

Conglomerate mergers

Conglomerate merger involves the firm engaged in unrelated types of business activity. The other three types of mergers are distinguished apart from conglomerate merger. First is product extension merger which refer to make product line of firm. Second is geographical market extension merger referring two firms operation is conducted under geographical areas. Third is pure conglomerate merger referring to involve unrelated business activities (Buono and Bow ditch, 1989).

Conglomerate merger helps in collecting and allocating financial resources and help in transferring managerial capabilities and potential for synergy. Conglomerate merger also helps in reducing capital cost by combination of imperfect cash flow which reduces bankruptcy and increase debt capacity (Staplenton, 1982, Lawellen, 1971).

5.0 Analysing the Financial position and Profitability of company

5.1 Reviews on Ratio Analysis

Ratio analysis can analyzed between two similar firm having same industry and similar size. Ratio analysis helps to analyse the performance of acquisition of same industry having different size can be better compared. The ratio can be divided into four categories that is Liquidity Ratio, Activity Ratio, Financial Leverage Ratio and Profitability Ratio (Patrick. A. Gaughan, 2002)

The financial performances of company can understood through ratio analysis that how company succeed after it merged. Ratio Analysis can be used to identify both potentially undervalued companies as well as competitor attention towards the company. Through ratio analysis once the company identifies as undervalue, a potential bidder assess its performances which improve to match those of its competitor (Brain Coyle, 2000).

5.2 Motives of Mergers

The motive of Horizontal merger is to expand the product line growth of companies. Market power and growth in economies also rises from horizontal merger. By producing same type of product line or service helps in improving company position. The motive of vertical merger is to increase the control over supplier input and helps in the final product in consumers market. Horizontal and Vertical merger are influence by government policy.

The risk of business is spreading through out the economy and is controlled under same financial umbrella. The conglomerate merger helps to adopt strategic consideration such as adopting product mix strategy that is to make industry mature. Conglomerate merger help those industry by adding more valuable capabilities towards whose sales are down or decline merger profit or the entry of competitive firm.

Through Mergers and Acquisitions activity many industries sector get benefited such as Pharmaceuticals, Telecommunication, Broadcasting and other industries get benefited. In Mergers and Acquisitions the performance is measured by motive of merger. The main motive of mergers is Growth which is as follows:

Growth The main motive for Mergers and Acquisitions is Growth. There is two phase for companies Growth that is Internal and External Growth. Internal Growth is considered first phase which helps those companies whose performance is very slow. Through internal growth, the growth of companies may be in rapid process. External growth is consider under second phase of growth. Under external growth Diversification refers to expand the outside of company. (Patrick A. Gaughan, 2002).

There are mergers motive which comes under Mergers and Acquisitions according to Patrick A. Gaughan (2002) they are:-

  • Improved Management
  • Improved Research and development
  • Tax motives
  • Improved Distribution
  • Research on Market Reaction and Shareholder Return

5.3 Theories on Mergers and acquisitions

Mergers and Acquisitions play an important role in increasing the power in buying with supplier to achieve strong supply market. Product Diversification helps to reduce the risk level or to control over distribution channel for remaining existing product line. Mergers and Acquisitions strategy help in business growth and to expand in wider areas. There are various theory were corporate adopt mergers and acquisition strategy as a motive. The theories are as follow (ICFAI, 2005) :-

  • Efficiency Theory
  • Information and Signalling
  • Market Power
  • Tax Considerations
  • Agency Problems and Managerialism
  • Hubris Hypothesis
  • Free Cash Flow Hypothesis
  • Value increase by Redistribution

The Few theories are explained in details which are as follows:-

Efficiency Theories The capital should be properly utilize so that the production of firm becomes more efficient and effective. The efficiency theory further classified for social benefits. There are several theories which comes under Efficiency Theories they are as follows (ICFAI, 2005)

  • Differential Efficiency Theory – The firm operates with lower potential result in lower average efficiency management. Managerial ability should improve for better efficiency management. This theory is based on Horizontal Merger. The extension of differential efficiency theory is managerial synergy hypothesis. If the firm management is facing from greater competency then firm will utilize all resources in acquiring and for improving the efficiency. Mergers utilize those resources which are indivisible and the resources which cannot be released. The option for diversify helps the firm to enter into new area. If the firm management is inefficient then another firm acquire that firm and brought up the level with existing firm.
  • Inefficient management theory – Inefficiency management could be basis for conglomerate merger. This theory implies to those firms whose management is not performing well and the asset are manage or control by another firm to make the firm more potential . Inefficient management theory is similar to managerial inefficiency. But the concept is completely different. In Differential efficiency theory the firm whose management efficiency is lower then another firm will acquire it and brought up the level of existing firm. But inefficient management theory the firm whose management efficiency is lower or poor then another firm controls that firm like managing the asset of firm.

Market Power Market Power is one of the main motives of merger for increasing the size of a firm. Increasing of share indicate increase the size of a firm in a market. When there is increase of share in a market, the firm can set level of price which is not sustainable under competitive market. Product differentiation, Market share and Entry barriers are the three sources of Market Power.

If there is increasing in market share and lack of product differentiation then the price cannot set above marginal cost. Horizontal merger are always consider to increase the power of monopoly. To achieve the market power they always concern with government. Market power leads to monopoly power. (ICFAI, 2005)

Synergy When two factor is combined to produce a valuable effect. According to Arnold (2002) the synergy is can be expressed by the relationship 2+2 = 5. The relationship expresses that combination of two resources of firm increase the value of firm. When one firms resources is combined with other firms resources to produce positive value and then it purchase other company below the present or actual value and which is consider under new management.

In Acquisition process the acquire firm has to pay the acquisition expenses and premium of target shareholder. Strategic planning is one of the key factors in synergy. Under strategy planning proper research, proper analysis and proper grounded realism should consider to make better and successful deal which should be adopted throughout merger planning. Under synergistic gain process is the process which flow through various channel to get competitor response.

It flow from strategic planning, Integration of merged business and then pass through performance improvement were the process is divided into two other process that is Revenue enhancement and Cost reduction. (Patrick A. Gaughan, 2002). Through synergy firm having a positive Net Acquisition which represents NAV in equation that is (ICFAI, 2005)

NAV = VAB – [VA + VB] – P – E

  • VAB = Value of two firm
  • VA = Company A’s measure its own value
  • VB = Company B’s market share value
  • P = Premium paid for B
  • E = Acquisition expenses

Through synergistic effect the equation will be

  • [VAB – (VA + VB)] or VAB – (VA + VB) + gain
  • The sum should be more than P + E
  • Overpayment cause if the sum of P + E is not greater

Financial Synergy – Financial synergy refers to reduce on cost of capital for acquiring the firm. If the cash flow is not properly correlated then risk for business may be high like high bankruptcy. This implies that when the firm is small and the cash flow is not properly correlated then such firm get solvent. The sharp theory towards financial synergy has criticised. Inefficient capital market financial synergy can not be arrived. Through Financial synergy the investment opportunities improve by relocating capital of acquiring firm. The cost for Internal and External financial may be lower through financing synergy. (Jemison and Sitkin, 1986). There are other types of synergy like (Brian Coyle, 2000)

  • Sales Synergy
  • Operating Synergy
  • Investment Synergy
  • Management Synergy

Pure Diversification Diversifications refers the strategy use by merger to exploit new or target market. Many firms are looking for Diversification through merger. Diversification improves the internal growth of firm by adding surplus internal resources or capabilities were the firm required. In a firm manager, owners and employees get benefited from diversification. The benefits to the stakeholder of company are as follows (ICFAI, 2005):-

  • Employees – Employees get specific valuable skills for efficient job. The valuable skills are only efficient to particular job and that firm only. Diversification is a best option for employees as they can diversify their earning income. They have got better opportunities, promotion, job security and stability with in firm which can be fulfilled through diversification.
  • Owner or manager – Risk can be reduces through diversification. As the owner can exploit the firm in new market and spread its risk. The owner can also act as a manager of firm. The manager can adopt perfect diversification strategy for making successful business.
  • Firm – Diversification helps the firm to change its inefficient value to efficient value. If the firm is diversified then the value may be increased by converting the skill of unproductive manager into productive ones. It helps in increasing profit and firm growth. Diversification firm can improve the profits of firm.
  • Goodwill – As Goodwill is gain by making good relationship with customer, supplier, creditor and other with whom the business is transact. Through Diversification firm can maintain its reputation in a market and can gain more goodwill. Through Diversification various strategic can be adopted to gain goodwill like huge investment in advertisement, training for employees, Research and Development for organization growth and many more strategy were adopted by the firm.

Tax Consideration The merger process and merger incentives are greatly affect by Tax system of a firm. Through Mergers and Acquisitions process the benefited of tax can be gained. If the merging firm is having current profit then after merging the tax and liability can be reduced. The cash flow can be lowered. If there is huge loss it can be used to reduce the taxable income. (ICFAI, 2005)

5.4 Failure of Mergers and Acquisitions

The value of company always increased through mergers and acquisitions. As strategic planning is undertaken carefully therefore the capabilities of company always improve and always show the sign of long term profitability. But sometimes better plan fails which leads to reduce the value of company and increase in cost which causes huge loss. Due to improper strategic planning and ignoring the rules and regulation under mergers and acquisitions cause failure of business.

Bad management and personality problem at senior level cause the failure of business. There are other reason were the business fails like inability of newly acquire business unit into acquiring company, overestimation of synergies, lack of communication, different culture and other reason were the business fails in mergers and acquisitions (Edward, P.Halibozek, Gerald Rovacich, 2005).

By avoiding the cost of Research and Development at the time of inter-related of two companies can cause in failure of business. When IBM acquires Lotus for $3.5 billion as the accounting value was $230 million (L. Edvinsson and M. S. Malone, 1997).

In 1997 for getting the talent from employees Cisco paid $2 million per employees in its acquisition. The money paid for employees may be at high risk. Cisco paid such money to get high expectation from employees. The money invested in such deals may be at high risk (B. Wysocki, 1997).

In 1999 there was 700 deals take place which examines through KPMG. The 210 deals were value neutral and 119 deals were created for combine value and 371 deals were destroyed in the period of 1996 to 1998.

The overestimates of acquisition cost which is partly visible under acquisition strategy. The overestimates of cost result in failure of business in mergers and acquisitions. When the acquisition took place the total cost should be consider instead of partly cost. (Grundy, 1996).

In United States the Mergers and Acquisitions take place in private held companies, limited transaction for success buyer. Public held companies exists more information as it operates in extensive wide area. The value of buyer is being destroyed through acquisition but sellers are being rewarded while getting their premium. There are many deals in mergers and acquisitions fails in transaction and circumstances are (F.C. Evans, D.M. Bishop, 2001):-

  • Price paid is too high – Even Company is getting better future return by making poor investment while paying extra than present value which result from failure to target company for paying more than its present value.
  • Pressure from executive level – The pressure from executive level may be high by making to move more quick for making company mark on the market without doing proper analysis would cause in failure of company.
  • Exaggerated Synergies – When company over estimated most of expenses like cost reduction and operating efficiencies in the intension for making more revenue causes failure in business in mergers and acquisitions.
  • Negative Synergies – Due to change in company name, strained relation between shareholder, negative public perception, cost of ending up the relationship package and closing facilities should be qualified as a part of the analysis.
  • Inconsistent Strategy – In mergers and acquisitions process if the wrong strategy is adopted then cause the failure of business. Improper strategy which consider under strategic planning causes shut downing the business of the company.
  • Inadequate Risk Analysis – Risk is always there in mergers and acquisition process. If the risk is not properly analysed then cause huge loss with failure of business. The risk may be high or low depending on the business were company deals. Both high and low risk will affect the business and causes failure of business.
  • Incapability of corporate cultures - Different styles, lack of communication, unexpected expectation and conflicting management styles and contribute lack of execution.
  • Distraction from existing business – Lack of target, strong competitor response, and affect in profitability and inattention of ongoing operation leads distraction from existing business. Most of firm’s failures depend on distraction from the existing business.

5.5 Movement of Merger waves

The first wave 1890 - 1904

In 1890s, the mergers and acquisitions activity took place in USA. This mergers and acquisitions activity was characterised for monopoly. It was recorded as first phase of mergers and acquisitions. In First phase there is 78% of Horizontal merger, 12% of Vertical merger and 10% including both horizontal and vertical merger. There was big deal made in US steel company when J.P Morgan joined Carnegie and then after they joined with other rival company.

In 1920s, the second phase of mergers and acquisitions activities was recorded for vertical integration. This phase helps to maximize the sales and distribution channel and helps to cut the advertisement cost. In second phase there was more oligopolies and less monopolies and has many vertical mergers. In this phase the investor enjoys more profit by investing small amount in big business. Due to crash in stock market the second wave ended.

The Third wave 1965 - 1969

The third phase recorded in 1960s, when conglomerate takeover and in 1980s, Hostile burst up takeover and in 1990s, it was pass through strategic synergistic factor. The high level of merger activity took place in third phase. This phase bring boom to economy in global stage. In 1969 the stock market, Tax reforms were decline which reduces the merger incentives.

The Fourth wave 1981 - 1989

In fourth wave the takeover of Hostile companies was not high in comparison with other number of takeover companies. It was recorded 21.6% of total dollar value of Mergers and Acquisitions in oil and gas industry. As increase of junk bond market the economy market get slow. Due to slow economy and mild recession the fourth wave ended.

The Fifth wave 19992 0nwards

After 1992s, the mergers and acquisitions mainly react with privatization, disinvestment and divestitures. Mergers and Acquisitions also react with globalisation of industries and liberalization and deregulation of industrial sector. Through corporate restructuring activities many activities took place in corporate world like joint venture, mergers and acquisitions activities, Takeovers, company subsidiaries and firm alliances. There are more strategic mergers occurred.

In this phase companies are seeking to expand and mergers are quick and efficient to get out with positives result. In first half of 2007 the European mergers were getting encouraged by Royal bank of Scotland. Thus 73% of mergers got the advantage of boosting by Royal bank of Scotland. There was big deal of $ 95 billion was proposed to Dutch bank ABN Amro by Group Led. Mergers and Acquisitions is always to acquire the target company by expanding the development plan and operates its operation by analysis the internal strength. It’s necessary to understand different types of mergers. As different types of mergers plays their own role in Mergers and Acquisitions. (Dr. A.Q Khan, 2003, Patrick A. Gaughan, 2002)

Chapter 3

Hindustan Unilever Ltd

“Add Vitality to life”

1.0 Introduction

This Chapter will provide a detail profile of Hindustan Unilever Ltd. The Past milestone and present stature of Hindustan Unilever Ltd is mention in this chapter. As the company celebrate 75 year of its operation in India. Hindustan Unilever Ltd is one of the largest manufactures of consumer goods.

This chapter provides the company deals with its brand, Corporate Strategy and management structure of Hindustan Unilever Ltd. The sale of Hindustan Unilever Ltd in the year 2007 was INR Rs.131775.37 and net profit for the year 2007 was INR Rs.192546.98. According to company’s Annual report 2007 shows an increase in Sales and net profit in the year 2007 in comparison with 2006.

2.0 Company Overview

2.1 Past Milestones

The first Indian Subsidiary company set up by Unilever in 1931 is Hindustan Vanaspati Manufacturing Company. The second company was incorporate in the year 1933 as Lever Brothers India Limited. The Third Company was incorporate in the year 1935 as United Traders Ltd. The three companies merged and form one company in 1956 as Hindustan Lever Ltd. The Hindustan Lever Ltd has 51% stakeholder of Unilever Ltd.

Hindustan Lever Ltd is one of the Indian largest multinational company which deals with product of daily use in kitchen like oil and vanaspati, soap and detergent and other product. The company has its own Manufacturing unit. In 1992 and 1993 company adopted the acquisition strategy to face the competition in a market. As the company is multinational so it has a top competitor from which the company face many competition. Hindustan Lever Ltd is a subsidiary of Unilever Ltd of Great Britain (Asish. K. Bhattacharyya, 2006).

2.2 Present Stature

Hindustan Lever Ltd was change into Hindustan Unilever Ltd on 18th may 2007. Hindustan Unilever Ltd is one of the largest multinational company and fast moving consumer goods company. The mission of Hindustan Unilever Ltd is to “Add Vitality to life” which covers 35 top brands that meets people daily life. The company deals with home and personal care product and foods & beverages.

The Unilever Ltd is the parent of Hindustan Unilever Ltd which holds 52.10% of Equity of Hindustan Unilever Ltd. Hindustan Unilever Ltd is awarded by Government as Golden super star trading house as becoming one of countries largest exporter. The Unilever Ltd is the parent of Hindustan Unilever Ltd which holds 52.10% of equity of Hindustan Unilever Ltd (Annual Report 2007, Hindustan Unilever Ltd).

In the year 2006 the sales of Hindustan Unilever Ltd was INR Rs.1210338.62 and the net profit was INR Rs.185537.34 which increased in the year 2007 as the sales reached to INR Rs.131775.37 and net profit reached to INR Rs.192546.98. In the year 2006 the shareholders fund was INR Rs.22067.76 which increase in the year 2007 as INR Rs.21774.63 (Annual Report 2007, Hindustan Unilever Ltd).

2.3 Platinum Jubilee Year for Hindustan Unilever Ltd

The vision of Hindustan Unilever Ltd is fulfilling as “Making a difference to the life of every Indian” (Annual Report 2007, Hindustan Unilever Ltd). In 17th October 2007 the Hindustan Unilever Ltd was celebrating its 75 year of its operation in India. The solemn of Hindustan Unilever Ltd is “what is good for India is good for Hindustan Unilever” (Annual Report 2007, Hindustan Unilever Ltd).which indicate social goods and business goals.

The most of Hindustan Unilever Ltd brand are with the same name of household utensils as they operate. According to the chairman of Hindustan Unilever Ltd Mr. Harish Manwani the company has created a milestone by touching the 700 million people from which the company introduce its brand. The company create some products which are meaningful innovation, better performance, better quality, customer experience, behaviour and satisfaction.

The Hindustan Unilever Ltd introduce shakti project in the year 2001 from which 45000 of women as entrepreneur. Through shakti vani programme the health and hygiene education has been deliberated. The company introduce Micro enterprise were many of rural women got job (Annual Report 2007, Hindustan Unilever Ltd).

According to chairman of Hindustan Unilever Ltd Mr. Harish Manwani said that they mainly concentrate on the consumer wallet that is consumer budget. The company is not interested in increasing price of product (http://www.livemint.com/2007/08/09000855/Hindustan-Unilever8217s-mar.html)

2.4 New Corporate Identity

The company changes its name in 18th may 2007 from Hindustan Lever Ltd to Hindustan Unilever Ltd. In the 74th Annual General Meeting with the approval of shareholder and government the company name has been changed. The new name has mission “Add Vitality to life” which add its brand product. The company represent its new identity in the corporate world which comes into effect. The new identity, logo and name represent the Indian tradition and synergies with Unilever (Annual Report 2007, Hindustan Unilever Ltd).

2.5 Hindustan Unilever Ltd brands

(http://www.naukrihub.com/india/fmcg/top-companies/hindustan-unilever.html)

3.0 Corporate Strategy

3.1 Vision

The Hindustan Unilever Ltd has a target to become a strong player in global market. The company face its local, national and international competitor through out market. The aim is to make a strong distribution channel in rural areas. The company is not only following cost cut leadership but other strategy like Product innovation strategy, Focusing Strategy, Attracting customer in different way and Running health programmes.

The sales and revenue is always consider as a prime objective were it is been analysed. Through marketing and advertisement the competitor market is been analysed. The Hindustan Unilever Ltd run Rural programmes with the vision of making billion of people better, safe and secure. The main aim of Hindustan Unilever Ltd is to become a single business unit in a market which leads to monopoly (Annual Report 2007, Hindustan Unilever Ltd).

3.2 Mission

The Hindustan Unilever Ltd mission is to “Add Vitality to Life” from which it introduce new innovative brand product that is for daily use of people. In the year 2001 the Hindustan Unilever Ltd launch the ambitious programmes called Shakti. The shakti cover 15 states 100000 villages and 45000 women entrepreneur were getting benefited. Through shakti vani Programmes the education of health and hygiene are explored in rural areas.

Micro enterprise is opened for women of rural area which has wide opportunities of job. The standard of living of women of rural area is been improved through Micro enterprise. The Hindustan Unilever Ltd has 150 million of rural consumers. It is connecting to rural communities through distribution and marketing. In 2010 the shakti covers 600 million rural peoples and will reach to 500000 villages and will become one of best player in the global market (Annual Report 2007, Hindustan Unilever Ltd).

4.0 Management Structure

Mr. Harish Manwani is the chairman of Hindustan Unilever Ltd. In 1995 Mr. Harish Manwani joined the Hindustan Unilever Ltd. The Hindustan Unilever Ltd has 15000 employees with 1300 manager which can work freely and under pressure. The main motive of organisation is to achieve goal through speedy and flexible way. The decision were analysed and then under taken by Board of Director.

The managers were empowered to get global skills and knowledge for analysing the competitor behaviour and competitor through taking training in Unilever Ltd. The success of the company depends on the team work and high qualities of corporate behaviour towards office team with whom we work. The whole management work together for improving the standard of company (http://hul.co.in/knowus/manage_structure.asp)

(Edward Stead, Garner Stead, Mark Starik, 2004)

Access

Access is a top level of strategy of Hindustan Unilever Ltd. The target is to main the standard of the company by organising staff and fulfilling the needs of company. In the Access strategy the company motivated their employees by increment, bonus and incentives, holiday and entertainment. To increase the profit and sales of company is the main target of Hindustan Unilever Ltd. The strategy involves to increase the shareholder wealth and to compare the share price with market price (Edward Stead, Garner Stead, Mark Starik, 2004).

Attitudes

Attitudes is the second level of Hindustan Unilever Ltd. The Attitudes structure involves providing Education programmes, Health and Hygiene programmes and to improve the standard of living of rural people. The aim is to increase the literacy ratio and to educate rural children (Edward Stead, Garner Stead, Mark Starik, 2004).

Awareness

Awareness is the third level of Hindustan Unilever Ltd. Through Awareness the company make good communication channel with rural people. Brand product can be introduced through awareness. Awareness is the main role were rural people get aware about new changes, knowledge about brand product and awareness about globalisation (Edward Stead, Garner Stead, Mark Starik, 2004).

Affluence

Affluence is the forth level of Hindustan Unilever Ltd. The detail analysis is done under Affluence. The affluence is the operational level of the company. The proper communication was build for analysing the situation and for taking decision (Edward Stead, Garner Stead, Mark Starik, 2004).

5.0 Conclusion

Hindustan Unilever Ltd is one of the largest exporter in India were it has been awarded by Government of India as Golden super star trading house. Hindustan Unilever Ltd is one of the largest manufacturing of consumer goods. Hindustan Unilever Ltd went through several local national and international merger processes. The merger process is success or fail is been analysed under this research. The Acquisition Strategy, Financial Position and the position of market share of Hindustan Unilever Ltd has been analysed in this research.

Chapter 4

Methodology

1.0 Introduction

In this chapter the Methodology carries out that how research design, research methodologies, Hypothesis of Research, Research approaches, Research objectives, Sources of Data and Tools and Techniques used to carried out the research more effective. For making real project the management should make proper research. The methodology is applied to carry out the research purpose. The methodology give a detail brief of whole research from one who can understand how the project work are being carried out. The research gives a philosophy as to develop the knowledge and verify the decision judgement through research work.

2.0 Hypothesis of Research

In the context of the research the positivist approach is used because the acquisition strategy of Hindustan Unilever Ltd was Wright or wrong after the series of mergers and acquisitions. This is the main objective of this research work. The other research seeks whether the shareholder value would be increase or decrease after the series of mergers and acquisitions which can be known by analysing through statistical approach.

By using Ratio analysis the research can identify the financial position of Hindustan Unilever Ltd after the series of mergers and acquisitions. The main hypothesis of this research is acquisition strategy was Wright or wrong which helps a lots for its development. Through research the finding leads another way.

3.0 Research objectives

The main aims and objectives of this research which is framed under mergers and acquisitions are as follows:

  • To analyze the acquisition strategy of the company.
  • To analyze the financial position and Profitability of the company
  • To analyze whether shareholders value would increase or decrease
  • To analyze the market share of the company.

4.0 Research Methodology

A systematic model that is operational or fundamental research, statistical techniques and procedures which is used to find the result of specific research problem is called Research Methodology. The systematic research helps to take optimal and effective decision by solving many problems. In practical situation for getting more accurate effective and efficient result a detail study is required. Such effort which came out from detail study for effective result is known as Research (R. Panneerselvam, 2004).

According to American Heritage college Dictionary Research means inquiry or scientific investigation or study of something thoroughly. Research provides a reasonable answer to a difficult question (Alison Mackey, Susan. M. Gass).

Research refers as a systematic investigation or search of knowledge. The Research contains more information by using all related existing information. This gives more valuable knowledge for doing extensive research. Research contains technical sense for redefining problems and suggested question. Researches contain careful analysis with systematic and scientific investigation. The art of knowledge is used to solve difficult question or saviour problem (Dr. C R Kothari, 2005).

The two ways through research methodology would be conducted that is

  • Inductive Research Methodology
  • Deductive Research Methodology

Inductive Research is based on experiment that is particular to general. The Inductive Research is based on considerable idea which helps in understanding valuable idea through new perspective. Deductive Research involves with abstract conceptualization and then passes through application theory for creating new observation and experiences (Zikmud, 2000).

5.0 Research Design

Research Design contains proper planning which is conducted from particular study for getting accurate result of such valid finding. The Research are further classified into Exploratory Research, Conclusive Research, Modelling Research and Algorithmic Research (Dr. C R Kothari, 2005).

  • Exploratory Research – The first stage of research is a exploratory research which contain data of different variable. These data is been analysed and explores in different way to find out proper solution without knowing their ending application. The types of exploratory research are as follows
  • Literature survey
  • Experience survey
  • Study of Insight survey
  • Conclusive Research – After exploratory research is finished the next type of research is conclusive research. Conclusive Research analyzed the research problem which is formulated by exploratory research and with help of such research conclusion is drawn. This conclusion helps in taking quick decision. Conclusive Research is classified into two groups:
  • Descriptive Research
  • Experimental Research
  • Modelling Research – Modelling Research is based on Reality. Many business problems are related with real life which can be solved through modelling research. To achieve positive result different type of model applied to business problem like:
  • Symbolic Model
  • Mathematical Model
  • Simulation Model
  • Algorithmic Research – The problem of government, business and industry can be solve through algorithmic research helps to obtain optimal solution for a problem with comes under polynomial category. Polynomial problem means a problem takes polynomial form of time complexity and volume complexity is known as polynomial problem.

6.0 Research Approaches

The Research Approaches has two types that are Qualitative Research and Quantitative Research. The two types of Research Approaches are as follow:

6.1 Qualitative Research

This approach is used in analysing the meaningful situation according to people behaviour. The Situation towards interview, concept and group are notice and used to develop theories and sources (Miles & Huberman, 1994). In Qualitative Research philosophical mode of operation is adopted. The procedure under Qualitative Research is not properly formalized.

Qualitative Research is also known as phenomenological approach. This approach helps in dealing with complex problem by understanding through a given concept as it construct a meaningful word which can be analysed (Johann Mouton, H.c.Marais, 1998). Qualitative Research is used in Evaluation process as they gather important information and help in finding which is very useful (Michael Quinn Patton, 2002).

In Qualitative research involves few methods such as case study, ethnography, grounded theory etc which explains in understanding Participants behaviour. Such method is used to translate, explain and finding out the subject of research (McGee, 2000). Qualitative research is useful in making new hypothesis for potential which is one of the great strength of Qualitative research (Brown, 2003). The Qualitative Research includes certain characteristics like Rich description, Natural and Holistic representation, Emic perspectives, cyclical and open-ended process and possible ideological orientations (Alison Mackey, Susan M. Gass, 2005)

6.2 Quantitative Research - The Quantitative Research is also known as positivist Approach. There are two types of Quantitative Research that is Associational and Experimental (B. Laurel, P. Lunenfeld, 2004). Positivist believes that hypothesis can be generating by using theory and building relationship between social and phenomena. So this relation can be tested by direct observation. Positivist opposes the understanding and emphasis on explanation. Positivism makes causal statement which is shared by realism but not by Qualitative or Interpretivism (Jonathan Grix, 2002).

Social phenomena can be identified through positivist approach from research used by natural science approach. Data of Quantitative, Hypothesis formulation and testing can be traced out from positivist approach (Bryman and Bell, 2003).

7.0 Sources of Data

The main motive of this research is to analyze the financial position of Hindustan Unilever Ltd, after mergers and acquisitions series. It is important to mention the type of data collected and the method of collecting them. There are two type data while doing the research that is Primary Data and Secondary data. The Acquisition strategy of Hindustan Unilever Ltd can be known through Primary data. The financial position of Hindustan Unilever Ltd can be known through Secondary data.

7.1 Primary Data

The data which is collected for first time in the form of interview, questionnaires etc is in the original form and has not been collected yet or before is known as Primary data. The data which is collected is expensive and arduous which is problem posing difficulty for drawing conclusion from the obtained data. The testing of hypothesis of study is the main objective of primary data (Florian Frensch, 2007).

In this research the Primary data is collected from Interview. The question which is used in interview was collected from survey. The question which were asked in the interview are as follows

  • As the company change its name, does it affect the financial position of company?
  • What were the motives of Hindustan Unilever Ltd for its merge?
  • Was the perception of shareholders okay after merger?
  • How would you refer the merger in the Synergy Base 1+1=3?

7.2 Secondary Data

The data which is obtained from books, journals, newspaper etc which is done previously and such data is used for specific research is known as secondary data. Secondary Data is gathered for testing hypothesis for an empirical research. The secondary data is extracted from primary data which is collected in various forms like statistics, annual report, yearbooks, special report etc. Through primary data the time consuming become less resources may be required for gathering secondary data (Florian Frensch, 2007).

In this Research the secondary data is collected from Company’s Annual Report that is Hindustan Unilever Ltd, Annual Report 2007. The other secondary data that is collected for this research is from Journal, Articles, Books, newspaper, websites and Library. The Library which is mostly visited is British Library, City Library, London school of Commerce and London School of Economic.

8.0 Tools and Techniques used

The Tools and Techniques were used to analyze the financial position of Hindustan Unilever Ltd after the series of mergers and acquisitions. The acquisition strategy of Hindustan Unilever Ltd can be analyzed through Tools and Technique which is used. The Tools and Techniques which can be used to analyze the firm profitability position and the shareholders value is increased or decreased after the series of mergers and acquisitions. The Tools and Techniques which is used for analysing are as follows

8.1 Ratio Analysis

The Ratio Analysis is used to find out the financial position that is Profitability, status of Liquidity and many more of Hindustan Unilever Ltd. As it analyze the firm strengths and weakness which gives complete evidence and knowledge of Hindustan Unilever Ltd. Financial analysis can de done through Ratio Analysis. The acquisition strategy of Hindustan Unilever Ltd can be better known through Ratio Analysis. The investor can assists the selection of stock and predict the future of company by using ratio analysis as a tool (Esme Faerber, 1999).

  • Current Ratio – The company weakness can be identified when there is a low current ratio. The company can not clear their liabilities or raising fund when there is low current ratio. In other words current ratio is the relationship between current assets and current liability. If the current asset is more than current liabilities then the company can payoff their liabilities through selloff or raising fund for paying their liability (Esme Faerber, 1999).
  • Quick Ratio - Quick Ratio is used to cover the short term debt or investment of the company without selling inventory. The Quick Ratio should be greater than one as the Quick Ratio includes current asset that can be converted quickly to cash near to book value. Quick Asset is used to payoff its current liability. The Quick Ratio is used to maintain the fund or cash in bad periods (Rhonda Abrams, Eugene Kleiner, 2003).
  • Gross Profit Ratio – The gross profit is obtained from income statement. The Gross Profit Ratio is the relationship between gross profit and net sales. Gross profit reflects the ability of management to control their cost which related with sales and it reflects the company trade mark on its cost of goods sold. When sales are subtracted with cost of goods sold then gross profit is obtained. The higher net profit ratio indicates better performance of business. (Esme Faerber, 1999).
  • Operating Ratio – The Operating ratio is the relationship between Operating expenses and net sales. Earning before Interest and Taxes (EBIT) is also known as Operating Profit. The Ratio simply defines company profitability and shows the measure of operating efficiency of company. The operating expenses that is administrative expenses, selling expenses and general expenses (Esme Faerber, 1999).
  • Net Profit Ratio – The Net Profit Ratio is the relationship between net profit after tax and net sales. The extra ordinary items, taxes and interest expenses which is included to non operating income and expenses. The ratio increased means the contribution of net sales towards net profits may be high (Esme Faerber, 1999).
  • Return on Investment - To measure the efficiency of one investment with different investment the Return on Investment is used and if there is negative Return on Investment or the other opportunities with higher Return on Investment then investment should not be consider. The relationship between total investment and the net profit that is investment from shareholders fund and the profit ratio of total investment is the Return on Investment. Return on Investment is the combining between earning and Investment (James G. Brown, Deloitte & Touche, 1994).
  • Return on capital employed – The measure that is used in return which is gained from capital employed is a Return on capital employed. If the Return on capital employed is higher than company borrowing then there will be increase in shareholders earning and if the Return on capital employed is lower than company borrowing then the increase in borrowing will reduce the earning of shareholders. The return from the efficiency and profitability from capital investment is a Return on capital employed (James G. Brown, Deloitte & Touche, 1994).
  • Earnings per Share - Earnings per Share is used to determine the P/E ratio. The figure which is obtained from Earnings per Share can be used for analysing the growth of earning from year to year. Earnings per Shares are calculated for firm’s profitability. The Earnings per Share determines the amount of earning of each share out of common stock outstanding. The company which is facing from many difficulties or in poor conditions may add some tactic of buying shares to improve the Earnings per Share and then their stock prices, but for long term the strategy won’t work (Esme Faerber, 1999).

8.2 Value Addition Method

The two methods which can identify the performance of investor strategy of Hindustan Unilever Ltd comparing with other investor portfolio whether they may be high, low or bad. The methods are Abnormal Return and Cumulative Abnormal Return. Through these methods the strategy and performance of investment of Hindustan Unilever can be extracted (David Faulkner, 2002).

  • Abnormal Return – When the return is more than expected that is return on asset is in more of the expected rate of return. The abnormal return is negative when the performance of market average is better than individual stock.(J. Fred Weston, Samuel. C. Weaver, 2001). The predicted return is the normal returns were the actual return is subtracted with predicted return (Don Erwin Ethridge, 2004). Through abnormal return the different between actual stock return and expected stock return is measured. The expected stock return is realized from market return through market wide event and the return from individual securities (David Faulkner, 2002).
  • Cumulative Abnormal Return – The Investment Strategy of Hindustan Unilever Ltd was Wright or wrong which can be known through cumulative abnormal return. It can be known when the different between the expected return of a security and actual return (J. Fred Weston, Samuel. C. Weaver, 2001). It is used to find out the decision made by the company on its stock value. Positive Cumulative Abnormal Return refers that the shareholder creates value when equity market expect the event. Negative Cumulative Abnormal Return implies the destroy value of shareholder when the equity market expect the event (Constantinous C. Markides, 1995).

CAR = ∑(AR)

9.0 Utility of The Study

In this globalisation world and tough competition faced by Indian Industries especially consumer goods industry were more industries are merging and making acquisition as a strategy to competitive other Indian industries. Mergers and Acquisitions have solved the problem of many Indian companies and adopted certain strategic choice to restructure their business. The analysis will help to find out the financial position of Hindustan Unilever Ltd and the Acquisition strategy used by Hindustan Unilever Ltd after the Merger and Acquisition series.

Period of Study

The required secondary data were collected for a period of seven years from 2001 to 2007.

10.0 Limitations To Study

The study got many limitations as there is stiff challenge to achieving certain objective of the research purpose. The limitation and challenge like time taking, financial problem, conclusion problem and copyrighted problem are certain limitation which was encounter in whole research work.

  • Time Taking – The research work take more effort and the time for research is very short. To obtain the financial data of both company and to obtain data analysis for making a detail sense for both company.
  • Difficult to conclude – As the conclusion is based on the research analysis which is based on different environment of both national and international company include their goals, objectives and policies and therefore it is difficult to conclude a proper conclusion.
  • Finance Problem – Finance is one of the major problems for whole research. As in many libraries there are subscription fees to access the library. The Xerox copy while taking from these libraries is much expensive.
  • Copyrighted system - There are some data which are copyrighted by the company. Due to Copyrighted system some of valuable data of company is difficult to get it. Such Copyrighted data cannot be printed, scanned or taking as Xerox copy.
  • Limited Data – The Data which collected for analysing the Value Addition method is unavailable from 2001 to 2002 in yahoo finance. Therefore the Value Addition Method is done from the year 2003 to 2007 and the Beta of the company is also obtained from that period only.

Chapter 5 Analysis and Interpretation of Results

1.0 Introduction

This chapter will provide the detail analysis of Literature Review and Research Methodology. The Research is conducted in two ways. The result from such research is different while analysing in both way. The first way is a method of Ratio Analysis and value addition method where both methods show the downward trend of the company. The second way is conducting Interview where the result shows the upward trend of the company.

The financial position of company is been analysed through ratio analysis. The Acquisition Strategy of company is been analysed through value addition method by calculating Abnormal Return and Cumulative Abnormal Return. The primary data is collected through conducting Interview and the secondary data is collected form Annual Report of Hindustan Unilever Ltd and referring various books on mergers and acquisitions.

2.0 Analyzing the financial position of Hindustan Unilever Ltd

Through financial ratio the Hindustan Unilever Ltd can identify their Liquid position, Profitability position, Debt ratio, working capital turnover ratio and inventory ratio.

Ratio Analysis

Ratio Analysis is a technique used to analyse the financial position of the company. Such technique is useful in finding whether the business is sound or not. In this Research the ratio of Hindustan Unilever Ltd is calculated to find the financial position of the company.

(National Association of Accountants, 1967)

Analysis of Short Term Financial Position – The Analysis of short term financial position covers Current Ratio and Quick Ratio.

  • Current Ratio
  • Quick ratio

Current Ratio

Current Ratio is the ratio of current assets and current liability. Current ratio helps in checking the strength of working capital and indicates the short term financial strength. The position of company and the capacity of effective business can be analysed through current ratio (National Association of Accountants, 1967)

The Current Asset of Hindustan Unilever Ltd in 2006 was (INR) Rs.3,169,65.51 which raise to Rs.3,277,40.95 in 2007. The current ratio indicates that the current asset has a fluctuation experience but in current liability shows a decline from the year 2006 to 2007 that is from 0.70 to 0.64. The average level of current ratio which is calculated from year 2001 to 2007 is 0.82.

As the current ratio is lower than 2:1, therefore the company does not have to maintain the financial position by keeping extra fund to meet out its current situation or current obligation. As the current ratio of 2007 is 0.64 which is lower than 2:1 that means there is inadequate of working capital.

In this research analysis it shows that the Current Ratio of Hindustan Unilever Ltd is decline and which shows downward trend.

Current Ratio

Year

Current Assets

Current Liability

Current Ratio

2001

342678.04

350182.28

0.98

2002

343106.88

367089.43

0.93

2003

350178.89

387059.71

0.9

2004

330495.53

371425.51

0.89

2005

277301.68

412832.34

0.67

2006

316965.51

452305.68

0.7

2007

327740.95

511098.08

0.64

(Computed from Primary Data)

Quick Ratio

The Quick Ratio is the relationship between liquid asset or Quick asset and Current Liability. Quick Ratio is also known as Liquid Ratio or Money Ratio. Quick Ratio can be calculated after Current Ratio and it is the analysed of current ratio (National Association of Accountants, 1967).

The Quick Asset or Liquid Asset of Hindustan Unilever Ltd for year 2001 is Rs.3,30,274.42 which is decreased in the year 2007 that is Rs.1,32,381.09. There is a great Fluctuation in quick ratio of 0.94 in 2001 and 0.26 in the year 2007. There is decline in quick ratio between the years 2001 to 2007.

The decline is due to the liquid asset is lower than current liability. The Quick Ratio in the year 2007 is 0.26 which is below than optimum ratio 1:1 which means the Liquidity position of Hindustan Unilever is not satisfactory. The company’s Liquid asset is not sufficient. To meet the current obligation the company has to extent of 26% of liquidity.

In this research analysis it shows that the Quick Ratio of Hindustan Unilever Ltd is decline and which shows downward trend.

(In Rs. Lakh)

Year

Liquid Assets

Current Liability

Quick Ratio

2001

330274.42

350182.28

0.94

2002

215233.26

367089.43

0.59

2003

210915.55

387059.71

0.54

2004

183451.27

371425.51

0.49

2005

145124.77

412832.34

0.35

2006

162194.41

452305.68

0.36

2007

132381.09

511098.08

0.26

(Computed from Primary Data)

Analysis of Long Term Financial Position – The Analysis of Long term financial position covers Proprietary Ratio and Solvency Ratio. Under Solvency Ratio two ratio covers that is Equity Short Term Ratio and Equity Total Debt Ratio.

  • Proprietary Ratio
  • Solvency Ratio
  • Equity Short Term Ratio
  • Equity Total Debt Ratio

Proprietary Ratio

Proprietary Ratio is the relationship between shareholders fund and total asset or total resources. Business solvency can be calculated through Proprietary Ratio. The strength of the company can be identified if the ratio comes 1:3. The creditors get benefited as the shareholder fund and total asset which is used in the business can be identified. If the Proprietary Ratio is high then the position of creditor is secured and if the Proprietary Ratio is low then there is a great risk for creditor were their position of creditor is unsecured.

In the year 2001 and 2002 the Proprietary Ratio was 0.57 and 0.67. Then in the year 2003 and 2004 the Proprietary Ratio decreases that is 0.38 and 0.37. The decline may be decrease in shareholders fund and the total asset of Hindustan Unilever Ltd increases. In 2005 the Proprietary Ratio went up to 0.45 and in the year 2006 it reached to 0.48. The increase in ratio may be increase in shareholders fund. It can be clearly states that the period between 2005 and 2006 the position of creditor is secured. In the year 2007 the Proprietary Ratio decline to 0.24 as the shareholders fund decreases.

In this research analysis it shows the Proprietary Ratio of Hindustan Unilever Ltd decline throughout the following year and it can be states that the creditors position of Hindustan Unilever Ltd is not secured.

Proprietary Ratio

(In Rs. Lakh)

Year

Shareholder's fund

Total Assets

Proprietary Ratio

2001

304369.18

536265.66

0.57

2002

365887.58

542543.29

0.67

2003

213872.6

564350.43

0.38

2004

209270.95

561917.44

0.37

2005

230562.6

514812.7

0.45

2006

272348.27

563234.36

0.48

2007

143923.41

594648.67

0.24

(Computed from Primary Data)

Solvency Ratio

Equity Short Term Debt Ratio

The Equity Short Term Debt Ratio is the relationship between Current Liability and Shareholders fund. Due to bad credit history of the company and lack of goodwill and royalty the company is becomes Inefficient and becomes solvent. To check the credit history there are some approved financial institution that checks the whole credit history of the company The Equity Short Term Debt Ratio is also called credit strength ratio. If the ratio indicates high then it is unfavourable for the company (National Association of Accountants, 1967).

The Equity Short Term Debt Ratio for the year 2001 is 1.09 and decline in the year 2002 as 0.96. The decline may record as increase in current liability with increase in shareholders fund. From the year 2003 the ratio increase up to 2005 and then slightly decline to 1.55 in the year 2006. In 2007 the Equity Short Term Debt Ratio is 3.12 which indicate the highest ratio among all the period. The increase in ratio indicate that the current liability of the company is increasing rapidly compare to shareholders fund.

In this research analysis it shows the Equity Short Term Debt Ratio of Hindustan Unilever Ltd Increasing throughout following year. This indicates the firm indicates the current liability is increasing which is not good for company performance. The shareholders fund is not increasing rapidly as compare to current liability.

EQUITY SHORT TERM DEBT RATIO

(In Rs. Lakh)

Year

Current

Liability

Net worth

Ratio

2001

350182.28

320869.2

1.09

2002

367089.43

383587.6

0.96

2003

387059.71

251286.9

1.54

2004

371425.51

223824

1.66

2005

412832.34

244762.6

1.69

2006

452305.68

291448.3

1.55

2007

511098.08

163923.41

3.12

(Computed from Primary Data)

Equity Total Debt Ratio

The Equity Total Debit Ratio is the relationship between outsiders fund and shareholders fund. The outsiders fund refers the loan funds which is included both secured and unsecured loan. The fund which is provided by proprietor and the fund which is provided by outsiders fund are compared for the long term solvency. The external and internal liability of the company is also considered in Equity Total Debt Ratio (National Association of Accountants, 1967).

In the year 2001 the Equity-Total Debt Ratio was 0.03 and decline in the year 2002 as 0.02. The decline may be increase in shareholders fund and increase in total outside liability fund. The ratio increases in the year 2003 that is 0.68 and slightly decline in 2004 as 0.66. The increase ratio may be variation of total outside liability and shareholders fund. In the year 2004 and 2005 the ratio is constant as it indicates for borrowing fund the firm is less dependency.

In this research analysis it shows the Equity Total Debt Ratio of Hindustan Unilever Ltd decline throughout following year. This indicates the firm is not depended on external fund.

EQUITY-TOTAL DEBT RATIO

(In Rs. Lakh)

Year

Total Outside Liability

Net Worth

Ratio

2001

8373.86

320869.18

0.03

2002

5829.76

383587.58

0.02

2003

170430.4

251286.87

0.68

2004

147111.5

223823.97

0.66

2005

5694.07

244762.6

0.02

2006

7260.3

291448.27

0.02

2007

8853.03

163923.41

0.05

(Computed from Primary Data)

Activity Ratio – The Activity Ratio covers Working Capital Turnover Ratio, Fixed Asset Turnover Ratio.

  • Working Capital Turnover Ratio
  • Fixed Asset Turnover Ratio.
  • Inventory Ratio

Working Capital Turnover Ratio

The Working Capital Turnover Ratio is the relationship between cost of sales and Net Working Capital Net Working Capital means current asset is subtracted with Current Liability. The company earns more profit when there is a high working capital and which makes low investment. Through Woking capital turnover ratio improves the efficiency of employment (National Association of Accountants, 1967).

In the year 2001 the Working Capital Turnover Ratio of Hindustan Unilever Ltd was negative (146.21). The negative ratio was showing due to negative working capital as the current liability is more than current asset. In the year 2002 the ratio is showing (41.51) and in the year 2003 the ratio decline to (27.49) which indicates increase in current asset comparison to current liability. In the year 2005 and 2006 the ratio is showing the stability as it indicates the current asset is stable during the period. In the year 2007 the ratio decline to (7.48). This is showing that the current asset of Hindustan Unilever Ltd is increasing compare to the current liability in the year 2007 which is better performance comparing to other years.

In this research analysis it shows the Working Capital Turnover Ratio of Hindustan Unilever Ltd increases the growth as the current asset is increasing which can be used to payoff their Liability.

WORKING CAPITAL TURNOVER RATIO

(In Rs. Lakh)

Year

Net Sales

Net working Capital

Ratio

2001

1097189.7

-7504.24

-146.21

2002

995485.6

-23982.55

-41.51

2003

1013835.3

-36880.82

-27.49

2004

992694.64

-40929.98

-24.25

2005

1106054.6

-135530.66

-8.16

2006

1210338.6

-135340.17

-8.94

2007

1371775.37

-183357.13

-7.48

(Computed from Primary Data)

Fixed Assets Turnover Ratio

The Fixed Asset Turnover Return Ratio is the relationship between cost of sales and net fixed asset were net fixed asset is calculated by deducting depreciation from value of asset. The efficiency and earning capacity of Hindustan Unilever Ltd can be measured. When the Fixed Asset Turnover Return Ratio is higher indicates intensive utilization of fixed asset (National Association of Accountants, 1967).

(Source: Annual Report 2007, Hindustan Unilever Ltd)

The Fixed Asset Turnover Return Ratio in the year 2001 was 5.67 which was decline in the year 2002 as 4.99. Throughout the research the Fixed Asset Turnover Return Ratio shows decline trend from the year 2002 to 2006. The decline may be the fluctuation in net sales. In 2002 to 2006 the net sale shows varies which is the reason for decline trend. But in the year 2007 the Fixed Asset Turnover Return Ratio slightly stood up and reached to 5.14. The increase may be increase in fixed asset in the year 2007.

In this research analysis it shows the Fixed Asset Turnover Return Ratio of Hindustan Unilever Ltd decline throughout the following year.

Fixed Asset Turnover Return Ratio

(In Rs. Lakh)

Year

Net Sales

Fixed Assets

Ratio

2001

1097189.7

193587.62

5.67

2002

995485.6

199436.41

4.99

2003

1013835.3

214171.54

4.73

2004

992694.64

231421.91

4.29

2005

1106054.6

237511.02

4.66

2006

1210338.6

246268.85

4.91

2007

1371775.37

266907.72

5.14

(Computed from Primary Data)

Inventory Ratio

The Inventory Ratio is the relationship between net sales and inventories. The higher Inventory Ratio refers better use of inventory.

In the year 2001 the Inventory Ratio goes to 8.85 and in the year 2002 and 2003 it decline and reach to 7.78 in 2002 and 7.28 in 2003. The decline may be increase in inventory and decrease in net sales. In the year 2004 it again decline to 6.75 which means increase in inventory.

The Inventory Ratio for the year 2005 is 8.37 which shows high efficiency and indicates better use of inventory in the yea 2005. Due to increase in inventory the Inventory Ratio in the year 2006 and 2007 decline that is in 2006 is 7.82 and 2007 is 7.02. Therefore it is clearly states that when the inventory increase the Inventory Ratio decreases.

In this research analysis it shows the Inventory Ratio of Hindustan Unilever Ltd is decline due to increase of inventory.

Inventory Ratio

(In Rs. Lakh)

Year

Net Sales

Inventories

Inventory Ratio

2001

1097189.7

124003.6

8.85

2002

995485.6

127873.6

7.78

2003

1013835.3

139263.3

7.28

2004

992694.64

147044.3

6.75

2005

1106054.6

132176.9

8.37

2006

1210338.6

154771.1

7.82

2007

1371775.37

195359.86

7.02

(Computed from Primary Data)

Profitability Ratio – The Profitability Ratio covers the Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net profit Ratio, Earning per Share, Return on Investment and Return On capital Employed.

  • Gross profit Ratio
  • Operating Ratio
  • Operating Profit Ratio
  • Net Profit Ratio
  • Earning per Share
  • Return on Investment
  • Return on Capital Employed

Gross Profit Ratio – Gross Profit Ratio analysis the earning capacity of Hindustan Unilever Ltd. The profitability and management efficiency of Hindustan Unilever Ltd can be measured through Gross Profit Ratio. It is a relationship between Net sales and cost of goods sold. Gross Profit Ratio indicates the revenue cost and trading cost of Hindustan Unilever Ltd.

As the calculation shows that the Gross Profit Ratio is not moving according to the net sales but the table in which Gross Profit Ratio is calculated is showing some improvement in the year 2007. As the Gross Profit Ratio in the year 2001 was 17.71 which increase in the year 2002 as 22.07 and in the year 2003 as 22.14 which means there was a record of good sale in the both year. The following year 2002 and 2003 also indicates that the Gross Profit Ratio is moving according to net sales. In 2004 the Gross Profit Ratio shows a decline sign and still decline in the year 2005. But in the year the Gross Profit Ratio stood up little bit which shows the Hindustan Unilever Ltd is improving their net sales in comparison to 2005. Improvement can be recorded a good sign for Hindustan Unilever Ltd.

In this research analysis it shows that the Gross Profit Ratio of Hindustan Unilever Ltd is decline trend.

Gross Profit Ratio

(In Rs. Lakh)

Year

Gross Profit

Net Sales

Gross Profit Ratio

2001

194337.22

1097189.7

17.71

2002

219711.56

995485.6

22.07

2003

224494.96

1013835.3

22.14

2004

150531.75

992694.64

15.16

2005

160447.14

1106054.6

14.51

2006

186168.09

1210338.6

15.38

2007

218452.67

1371775.37

15.92

(Computed from Primary Data)

Operating Ratio – The operating Ratio is used to discuss the profitability of Hindustan Unilever Ltd. This is done by keeping operating expenses low and cost of goods sold be up which affect the net sales of Hindustan Unilever Ltd. This indicates the business of Hindustan Unilever Ltd is efficient. Operating Ratio is the relationship between total operating expenses including cost of goods sold, selling expenses, administrative expenses and financial expenses and sales.

In the year 2001 the operating ratio is 84.38. Then there is decline in 2002 and 2003 but from the year 2004 the ratio goes up and in the year 2007 it reached to 86.25. The operating Ratio is increasing at the end but there is a fluctuation in the middle of period. The reason of such fluctuation may be increase in sales which leads higher operating cost.

In this research analysis it shows that the Operating Ratio of Hindustan Unilever Ltd is increasing which is good sign for company.

Operating Ratio

(In Rs. Lakh)

Year

Operating Cost

Net Sales

Operating Ratio

2001

925791.13

1097189.7

84.38

2002

799899.5

995485.6

80.35

2003

816168.31

1013835.3

80.5

2004

848957.9

992694.64

85.52

2005

961721.5

1106054.6

86.95

2006

1045532.3

1210338.6

86.38

2007

1183205.25

1371775.37

86.25

(Computed from Primary Data)

Operating Profit Ratio – The Research shows that in the beginning of the year 2001 the Operating Profit Ratio was 15.62 which decline in the year 2007 as 13.75. The reason behind decline may be increase in net sales and leads to increase the operating expenses that would affect operating profit ratio. But in the year 2002 and 2003 the Operating Profit Ratio was increased that is 19.65 in 2002 and 19.50 in 2003 which indicates the low operating cost and increase in net sales would increase the Operating Profit Ratio. The decline records from the year 2004 till the year 2007. The fluctuation may be increasing in net sales with high operating cost leads in decreasing the Operating Profit Ratio.

In this research analysis it shows that the Operating Profit Ratio of Hindustan Unilever Ltd is decreasing means indicating downward trend.

Operating Profit Ratio

(In Rs. Lakh)

Year

Operating Profits

Net Sales

Ratio

2001

171398.56

1097189.7

15.62

2002

195586.1

995485.6

19.65

2003

197667.01

1013835.3

19.50

2004

143736.74

992694.64

14.48

2005

144333.12

1106054.6

13.05

2006

164806.3

1210338.6

13.62

2007

188570.12

1371775.37

13.75

(Computed from Primary Data)

Net Profit Ratio – The Net Profit Ratio help Hindustan Unilever Ltd to measure the overall profitability of the company. The higher net operating profit against sales indicates better operational efficiency.

The Net Profit Ratio increases from the year 2001 to the year 2007. The net profit of Hindustan Unilever Ltd shows a good sign in the year 2002 and 2003 which was 17.25 and 17.80. In the year 2002 the Net Profit Ratio is high due to high gross profit ratio and low operating cost leads increase in net sales. In 2003 the gross profit increased but there was decrease in net sales and due to low operating cost the net profit increases. In the year 2007 the net profit ratio is 12.90 which are more efficient between 2004 till the year 2007. The Net Profit Ratio increases in the year 2007 while comparing to the year 2006. The reason may be net profit is charged after tax.

In this research analysis it shows that the Net profit Ratio of Hindustan Unilever Ltd is decreasing which is not a good sign for company. The net profit ratio increases due high expenses and loss in operating profit ratio.

Net Profit Ratio

(In Rs. Lakh)

Year

Net Profit after tax

Net Sales

Net Ratio

2001

154095.22

1097189.7

14.04

2002

171726.56

995485.6

17.25

2003

180433.96

1013835.3

17.8

2004

119927.65

992694.64

12.08

2005

135450.81

1106054.6

12.25

2006

153967.09

1210338.6

12.72

2007

176905.78

1371775.37

12.90

(Computed from Primary Data)

Net Profit To Net Worth Ratio

The net profit to net worth ratio is the relationship between net profit after tax and shareholders wealth.

The net profit to net worth ratio of Hindustan Unilever Ltd is recorded highest ratio in the year 2007 as 117.46. The net profit to net worth ratio in the year 2001 was 51.15 but in the year 2002 the ratio decline to 45.77 and then went up in the year 2003 as 70.51. The decline may be increase in shareholder net worth with increase in net profit after tax.

In the year 2004 and 2005 the ratio decline. But the period between 2006 and 2007 there was a great change which leads in increase in net profit to net worth ratio. The reason for increasing may be decrease in shareholders net worth and increase in net profit after tax.

In this research analysis it shows the net profit to net worth ratio of Hindustan Unilever Ltd is increasing.

NET PROFIT TO NET WORTH RATIO

(In Rs. Lakh)

Year

Net Profit After Tax

Shareholders’ Net Worth

Ratio

2001

164131.35

320869.18

51.15

2002

175568.46

383587.58

45.77

2003

177179.4

251286.87

70.51

2004

119734.37

223823.97

53.49

2005

140810.44

244762.6

57.53

2006

185537.34

291448.27

63.66

2007

192546.98

163923.41

117.46

(Computed from Primary Data)

Earning Per share Ratio – Earning Per share Ratio is the relationship between net income and capital stock. Earning Per share Ratio gives detail information about income earned from its stock share investment. Through Earning Per share Ratio the investor can compare the share prices with market prices. Earning Per share Ratio is used to evaluate the share price. Earning Per share Ratio is also used in measuring the income with share price basis. If the two similar company that generate Earning per share will only efficient if one company do less equity then such company be more efficient by using its capital to generate its income that leads the company as better and efficient (National Association of Accountants, 1967).

In the year 2001 the Earning Per share Ratio of Hindustan Unilever Ltd is 7.46 which slightly or marginally increased up in the year 2002 as 7.98. The marginally increases means there is increase in net profit in the year 2002. In 2003 the Earning Per share Ratio goes up to 8.05. This indicates the increase is due to there is high net profit ratio in the year 2003. But the Earning Per share Ratio was decline in the year 2004 as 5.44 and 6.40. The decline indicates the decrease of net profit and the number of equity shares is constant. In the year 2006 the Earning Per share Ratio went to 8.41 and reached 8.84. The increase in Earning Per share Ratio in the year 2007 was high which indicates increase in net profit compare to capital stock.

In this research analysis it shows the Earning Per share Ratio of Hindustan Unilever Ltd is increasing.

Earning Per Share ratio

(In Rs. Lakh)

Year

Net Profit

Capital Stock

Earning Per Ratio

2001

164131.4

22012.44

7.46

2002

175568.5

22012.44

7.98

2003

177179.4

22012.44

8.05

2004

119734.4

22012.44

5.44

2005

140810.4

22012.44

6.40

2006

185537.3

22067.76

8.41

2007

192547

21774.63

8.84

(Computed from Primary Data)

Return on Investment Ratio – The inventory’s equity can be done through Return on Investment Ratio. If the Return on Investment Ratio is negative or higher Return on Investment Ratio with other opportunities then such investment should not consider. Return on Investment Ratio measures the efficiency on investment and calculate the benefit from such investment.

Hindustan Unilever Ltd can measure the company value by knowing the generated profit out of its invested capital. The higher Return on Investment Ratio is meant to be better investment. Through Return on Investment Ratio the company can identify that its business is worthwhile or worst (National Association of Accountants, 1967).

In the year 2001 the Return on Investment Ratio of Hindustan Unilever was 50.63 but was decline in the year 2002 of 46.23. The decline indicates lower return from investment. In the year 2003 the Return on Investment Ratio was 84.37. This higher Return on Investment Ratio refers better rate of return on investment. In the period between the years 2004 to 2006 there was fluctuation were the Return on Investment Ratio decline.

The decline may be high volatility return from investment. There is a fluctuation in net profit after tax and shareholders fund. In 2007 it was recorded as highest Return on Investment Ratio that is 122.92 which indicates the return from investment is worthwhile. The increase in rate of return is may be the shareholders fund is lower than net profit after tax. In 2007 the Return on Investment Ratio shows higher which means of better rate of return.

In this research analysis it shows the rate of return on investment is better and the shareholder are enjoying a great return on investment

Return on Investment Ratio

(In Rs. Lakh)

Year

Net Profit

After Tax

Shareholder's fund

Rate on Investment Ratio

2001

154095.22

304369.18

50.63

2002

171726.56

365887.58

46.93

2003

180433.96

213872.6

84.37

2004

119927.65

209270.95

57.31

2005

135450.81

230562.6

58.75

2006

153967.09

272348.27

56.53

2007

176905.78

143923.41

122.92

(Computed from Primary Data)

Return on capital Employed Ratio – The return from capital invested is measured in Return on Capital Employed Ratio were the return is worthwhile or not. When two similar firm continuing same business under same industry provide efficient long term fund. Return on Capital Employed Ratio is the relationship between operating profit and capital employed. Return on Capital Employed Ratio is used to measure the long term fund of Hindustan Unilever Ltd is efficient or inefficient which is supplied by the creditor and the proprietor of the company. Return on Capital Employed refers the long term fund of the company (National Association of Accountants, 1967).

Return on Capital Employed Ratio of Hindustan Unilever Ltd in the year 2001 was 28.73 and which goes up to 31.65 in the year 2002. In the year 2003 the ratio slightly increases that is 31.97 which signifies that the return was high. The higher ratio indicates better return. In the year 2004 the ratio decline that is 21.34 and in the year 2007 it reached to 29.75.

The decline indicates the negative growth rate in net profit after tax. The net profit after tax decreases through out the period while the gross capital employed increases during the period. The return which is expecting by Hindustan Unilever Ltd is not getting while the return is improving much better in 2007 that is 29.75 compare to 2004.

In this research analysis it shows the Return on Capital Employed Ratio of Hindustan Unilever Ltd is decline but the ratio still showing the sign of improvement.

Return on Capital Employed Ratio

(In Rs. Lakh)

Year

Net Profit After Tax

Gross Capital Employed

Return On Capital Employed Ratio

2001

154095.22

536265.66

28.73

2002

171726.56

542543.29

31.65

2003

180433.96

564350.43

31.97

2004

119927.65

561917.44

21.34

2005

135450.81

514812.7

26.31

2006

153967.09

563234.36

27.34

2007

176905.78

594648.67

29.75

(Computed from Primary Data)

Overall Profitability Ratio

The Overall Profitability Ratio is calculated by dividing Net Profit after Tax by Total Assets. The Overall Profitability Ratio measures the overall performances of the company. If the Overall Profitability Ratio increases then it indicates the profit increases and there is a huge return from investment (National Association of Accountants, 1967).

In the year 2001 Overall Profitability Ratio of Hindustan Unilever Ltd is 30.61 which increase in the year 2002 as 32.36. The increase may be increase in net asset after tax and increase in Total Assets. In the year 2004 and 2005 the ratio decline as 21.31 and 27.35. The decline reason may be decrease in the net profit after tax and decrease in Total assets. During the period of 2006 and 2007 the Overall Profitability Ratio increases. The Overall Profitability Ratio for the year 2006 is 32.94 and in the year 2007 were 32.38.

In this research analysis it shows the Overall Profitability Ratio of Hindustan Unilever Ltd decline throughout the mid of the year. But in the 2007 the Overall Profitability Ratio increase as it indicates the increase in Net Profit.

OVERALL PROFITABILITY RATIO

(In Rs. Lakh)

Year

Net Profit

After Tax

Total Assets

Ratio

2001

164131.35

536265.66

30.6

2002

175568.46

542543.29

32.36

2003

177179.4

564350.43

31.4

2004

119734.37

561917.44

21.31

2005

140810.44

514812.7

27.35

2006

185537.34

563234.36

32.94

2007

192546.98

594648.67

32.38

(Computed from Primary Data)

3.0 Analyzing the Acquisitions strategy of Hindustan Unilever Ltd

The Research provides a detail strategy of acquisition made by Hindustan Unilever Ltd. In the year 2006 the sales of Hindustan Unilever Ltd was Rs.1210338.62 which increase and reached to Rs.1371775.37 in the year 2007. The net Profit in the year 2006 was Rs.185537.34 and which increase in the year 2007 as Rs.192546.78. But the Research shows different result. That is the Acquisition strategy made by Hindustan Unilever Ltd is not right which can be understood by following Research.

3.1 Acquisition strategy of Hindustan Unilever Ltd

Hindustan Lever Ltd: - In the year 1931 the first Indian subsidiary formed by Unilever. Through merger Unilever setup three major Unilever group to form Hindustan Lever Ltd which is one of the largest multinational company in India is Hindustan Lever Ltd. The Unilever has 51% stake in Hindustan Lever Ltd. In 1992 and 1993 the income and revenue was mostly earned by Hindustan Lever Ltd was through Detergent and soaps, Beverages, Personal product, oil and vanaspati and some other product.

In the year 1984 the international acquisition was made by Brooke Bond while joining to the Unilever. In 1972 the Unilever acquire Lipton which incorporates in 1972 as Lipton Tea Limited. In 1998 Hindustan Unilever Ltd acquire Lakme brand and divested its 50% stake in joint venture. This was done after the joint venture happen between Tata Company and Lakme Limited. In 1996 Broke Bond Lipton India Limited merged with Hindustan Unilever Ltd.

In 1998 Pond India Limited merged with Hindustan Unilever Ltd. In 2000 government of India award 74% of equity to Hindustan Unilever Ltd in the form of Modern Food. In 2002 by making modern food as a strategy the remaining stake of government was acquire by Hindustan Unilever Ltd. In 2003 Hindustan Unilever Ltd acquire the business of Amalgam Group of companies In the year 2007 0f 18th may the name of Hindustan Lever Ltd change into Hindustan Unilever Ltd. (http://hul.co.in/knowus/past_milestones.asp).

3.2 Strategy of Hindustan Unilever Ltd in Present Stature

  • Product Innovation Strategy - The cost cut leadership was a strategy used in competitive market in the year 2006. The determine target which company stood in the year 2006 was change in 2007 as the strategy of as Product Innovation. Through Product innovation the company is looking for much better and successful future. By Introducing new product in market through research, marketing and analysing competitor behaviour indicates increase in net profit (http://hul.co.in/knowus/present_stature.asp).
  • Focusing Strategy – In the year 2007 the Hindustan Unilever Ltd is more active on Focusing Strategy. They mainly focus in several department of different industry. Education on Health and hygiene, Empowerment of women and water management. The Hindustan Unilever Ltd also focus in giving education to underprivileged children, giving treatment for HIV-POISITIVE (AIDS), special care for destitute. The Hindustan Unilever Ltd is also focusing for taking respond in the criminality case and helping the people who are serving from earthquakes and Tsunami which cause in South India (http://hul.co.in/knowus/present_stature.asp).
  • Attracting Customer - In the year 2007 Hindustan Unilever Ltd adopted the strategy of attracting customer. The strategies involves by doing huge promotional campaigns and advertising new product. The Hindustan Unilever Ltd is making huge investment in brand product, product up gradation and packing – repacking and building better communication channel through marketing. The Hindustan Unilever Ltd spent Rs.137 crore as expenses for Advertisement in the year 2007 which attracts more customers through Advertisement (http://hul.co.in/knowus/present_stature.asp).
  • Rural Health Programmes – The Hindustan Unilever Ltd run rural programmes in the rural area by providing ambitious programmes. In 2001 the Hindustan Unilever Ltd launches the ambitious programme that is Shakti. Through Shakti the ambitious programme deliver that is giving more opportunities for rural women, it helps in improving the standard of living and rural communities and creating enterprise opportunities. In the year 2007 the company cover the programme through 150 million rural consumer and 15 states and reaching up to 100,000 plus village. The company estimates at the end of year of 2010 the Shakti will reach over 600 million rural consumer, 100,000 Shakti entrepreneurs and which covers 500,000 plus village (http://hul.co.in/knowus/present_stature.asp)

3.3 Interview conducted on 8th July 2008

  • As the company change its name, does it affect the financial position of company?
  • The interviewed citied that in 18th may 2007 the company changes its name from Hindustan Lever Ltd to Hindustan Unilever Ltd. The company added its value to shareholder as well its stakeholder. At present the company has 40,000 stake holders. The Hindustan Unilever Ltd grew 13.3% which remarks highest growth in last few years. The change in the company name added value to its company as the value compare to its merged. The change in name added some value to the financial position of company as increases in sales and total revenue compare from the year 2006 with the year 2007.
  • According to Mr. Doug Baillie, citied that after the changed in company name the value of shakti project increases. In the year 2006 the shakti project cover 100,000 villages and 15 states out of which the 30,000 were women entrepreneur. This was increased in the year 2007 as the 45000 women entrepreneur. He added further more expectation from the company in the year 2010. According to him, the Shakti will reach over 600 million rural consumer, 100,000 Shakti entrepreneurs and which covers 500,000 plus village in the year 2010.
  • What were the motives of Hindustan Unilever Ltd for its merge?
  • The interviewee citied that that Hindustan Unilever Ltd wants to build a strong position in competitor market. The increase of competitor market makes the company merge and remarks Indian number one company.
  • According to Mr. Doug Baillie, citied that the main aim behind such merged is that Hindustan Unilever Ltd should become one of the biggest global players in this global market.
  • According to Mr. D. Sundaram, citied that the Hindustan Unilever Ltd got Powerful IT were the order of product and cash transactions were done quickly. The motive was to gain market share and to attract the Hindustan Unilever Ltd customer. The other motive is to increase the shareholders wealth.
  • Was the perception of shareholders okay after merger?
  • According to Mr. Doug Baillie, citied the shareholder value is being increased after the series of mergers and acquisitions. The share holders fund has been increased from year to year. In the year 2006 the share holders fund was INR Rs.220, 67.76 Lakhs and increase in the year 2007 were reached up to INR Rs.217, 74.63 Lakhs.
  • According to Mr. D. Sundaram, citied that the increase in share holders wealth increase the net profit of the company. we are expecting more investment in the year 2008 and 2009
  • .How would you refer the merger in the Synergy Base 1+1=3?
  • The interviewee citied that the company mission is “Add Vitality to life” and the change in company name helps the company to face new challenges in corporate world. So far the company earned the synergy of 2.2 as it faces from several challenges and last I would to add that there is increase in share holder fund which is good sign for the company.
  • According to Ms. Leena Nair, citied that the employees are working hard and always conscious towards achieving goals. Through shakti project the women are getting more jobs and the standard of rural living is also improving. The company target is to cover all rural areas through advertisement and marking new product which increases the revenue of company.
  • According to Mr. Doug Baillie, Ltd citied that as the new logo and symbolic of company formed after comprising 25 different logos and symbolic which represent company. The mission statement of Hindustan Unilever Ltd is “Add Vitality to life” which represent the new brand and idea to its vitality. Our new logo and mission statement represent new identity in the global market which gives more confidence in doing global business.

4.0 Analysing whether shareholders value has been increase or decrease

The method which is used for analysing the Share holder value that has been increase or decrease can be known through Value Addition method while obtaining beta of a company through Regression Analysis.

Value Addition Method – The Value Addition Method helps in finding the acquisition strategy of company. The method evaluate the performance of company goes in positive or negative direction. The methods are Abnormal Return and Cumulative Abnormal Return. If the Cumulative Abnormal Return provides positive then the investor strategy is consider as better strategy and the company is going in right way.

As in other way if the Cumulative Abnormal Return provides negative that means the company is not satisfy with its acquisition strategy and the investor is unhappy with their investment. Through these methods the strategy and performance of investment of Hindustan Unilever can be extracted and produce the result.

Abnormal Return and Cumulative Abnormal Return

Abnormal Return is calculated with the difference of actual return and normal return. Normal return refers predicted return which would be expected if no event occurred. Through Abnormal return the value can be identified that such value is been added after it merge. The Abnormal return is also called Residual. The Abnormal Return can be Negative also when there is a fluctuation in return (Don Erwin Ethridge, 2004).

Cumulative Abnormal Return refers the summed of Abnormal return. Cumulative Abnormal Return is used in test statistics. Abnormal return and Cumulative Abnormal Return is useful when there is no information is available after the company merged (Don Erwin Ethridge, 2004).

As Due to Limitation of Study that is the data which is to be calculating for finding beta, the data for Abnormal Return and Cumulative Abnormal Return from the year 2001 to 2002 in Yahoo Finance is unavailable. Therefore the data which is available in Yahoo Finance is been calculated that is from 2003 to 2007. The same data is calculated for obtaining Beta from Regression Analysis.

A Regression analysis is been calculated where to find out the P-value of regression is than 0.05 (P<0.05). Beta is a measure of Price Volatility of a security as compare with market as a whole. The beta of a security measures the sensitivity of the returns on the security to changes in systematic factors. In regression analysis the value of beta explains the distribution of correlated returns (Denzil Watson, Antony Head 2007).

The Beta of a company is 0.826 were the P-value of the company is 1.35E-06 which is less than 0.05 and is significant.The R square of the company is 0.338514 which is less than 0.7 that means the specific risk may be higher.

The Abnormal Return and Cumulative Abnormal Return of Hindustan Unilever Ltd from the year 2003 to 2007 are as follows:

In the graph the Abnormal Return for the year 2003 to 2007 shows both positive and negative. This clearly states that the expectation of investor of Hindustan Unilever Ltd is lacking from profit and is not able to fulfilling their values due to high fluctuation in the return. The positive Abnormal Return makes investor to invest for getting good profit. The Cumulative Abnormal Return is negative from the year 2003 to 2007 which shows the Failure strategy of Hindustan Unilever Ltd. The Acquisition strategy of Hindustan Unilever Ltd was not right according to the method used in this Research.

The data of Cumulative Abnormal Return shows a downward trend which shows the investor is unhappy from acquisition strategy of Hindustan Unilever Ltd.

5.0 Analyzing Market share of Hindustan Unilever Ltd

In quarter of June 2007 Hindustan Unilever Ltd grew its Sales by 13% and the Net profit by 30%. The market Share still decline which shows the downward trend. By following way it can be said that the Hindustan Unilever Ltd loses its Market Share (http://www.livemint.com/2007/08/09000855/Hindustan-Unilever8217s-mar.html).

  • Soap & Detergent Business – The Soap & Detergent business of Hindustan Unilever Ltd grew its total revenue by 7% and the industry grew by 8%. The Godrej Consumer Products Ltd (GCPL) is the close rival of Hindustan Unilever Ltd. The market share of GPCL in Soaps & Detergent is grew by 24.3% as the Hindustan Unilever Ltd dominate 53% of market Share as its share decline by 2.4% in term of value and 2.6% in term of unit sold. GPCL becomes a strong competitor of Hindustan Unilever Ltd as eating and heating of all Hindustan Unilever Ltd market Share.
  • Toothpaste Business - Hindustan Unilever Ltd brand product in toothpaste is Close-up and Pepsodent. The Pepsodent is growing by 4.5% from which of 11% of market share of Pepsodent. Dabur India Ltd is a rivalry competitor of Hindustan Unilever Ltd for toothpaste buiness. Dabur India Ltd has a strong brand product like Babool and Meswak which grew market share of 32%. Colgate-palmolive is also one of the rivalry competitor of Hindustan Unilever Ltd which grew market share of 14% which is comparatively high than Hindustan Unilever Ltd brand.
  • Skin Care Business – The Brand for skin care business of Hindustan Unilever Ltd are Fair & lovely and Ponds which has dropped down it market share by 0.4% in quarter of June 2007. The company is planning to relaunch of Fair & Lovely in different way that is through strong distribution channel, advertising and marketing, better quality is also consider under top priority.
  • Tea & coffee Business – The Tea & coffee brand of Hindustan Unilever Ltd is Brooke Bond and Bru. The Brooke Bond deals with Tea and Bru deals with coffee. In quarter of June 2007 the rival competitor as Tata Tea Ltd displace the Hindustan Unilever Ltd top position from a market. The Hindustan Unilever Ltd face a strong competition from Tata Tea Ltd from which Hindustan Unilever Ltd market share dropped to 18.6% in volume and Tata Tea Ltd was 19.2%. The market share of Hindustan Unilever Ltd is 24% and which is more than Tata Tea Ltd is 21%.

Reason for Losing Hindustan Unilever Ltd market share

  • Neglecting small competitor and lack of analysing big competitor.
  • Lack of focusing in cost cut leadership strategy.
  • Lack for Analysis of Strength Weakness Opportunities and Threats.
  • Lack of marketing and advertising of new Innovative Product.
  • Lack of introducing of new product with high quality and low price.

Chapter 6 Major Findings, Conclusions and Suggestions

1.0 Major Findings of Research

The Major Finding of Research is done on the basis of Ratio Analysis and Value Addition Method. The Ratio Analysis is done to analyse the financial position of Hindustan Unilever Ltd. The Value addition Method is done to analyse the investor position whether they are getting benefit from the company’s Acquisition strategy. The position of company’s market share is been analysed which is compared with its rivalry company. The detail findings of Research are as follows:

Analyzing the financial position of Hindustan Unilever Ltd

Ratio Analysis: In Ratio Analysis the ratio of the company is calculated from the year 2001 to 2007. The Ratio Analysis shows the financial position of Hindustan Unilever Ltd which goes down. The company is facing from downward trend. The ratios are as follows

Analysis of Short Term Financial Position – The Current ratio and Quick Ratio is been analysed in the Analysis of short term Financial Position.

  • Current Ratio – The Current Ratio for the year 2001 was 0.98 and 0.64 in the year 2007 which indicates the ratio slops down. The Current ratio shows downward trend.
  • Quick Ratio – The Quick Ratio for the year 2001 was 0.94 and in the year 2007 it was 0.26. The Quick Ratio decline and shows downward trend.

Analysis of Long Term Financial Position – The Proprietary Ratio and Solvency Ratio are analysed under Analysis of Long term Financial Position.

  • Proprietary Ratio – The Proprietary Ratio for the year 2001 was 0.57and in the year 2007 it was 0.24. The Proprietary Ratio showing a great fluctuation during the period. The Proprietary Ratio is showing downward trend.
  • Solvency Ratio – In Solvency Ratio the two other ratio analysed that is Equity Short Term Debt ratio and Equity Total Debt Ratio. The Equity Short Term Debt Ratio for the year 2001 was 1.09 and in the year 2007 it was 3.12. The ratio increases as it indicate the current liability of the company increasing which is not good for company’s performance. The Equity Total Debt Ratio for the year 2001 was 0.03 and in the year 2007 was 0.05. But in the mid of the year the ratio shows a great fluctuation were the ratio shows a decline trend in the mid of the year.

Activity Ratio – The Working Capital Turnover Ratio, Fixed Asset Turnover Ratio and Inventory Ratio are such ratio which is calculated under Activity Ratio.

  • Working Capital Turnover Ratio – The Working Capital Turnover Ratio in the year 2001 was negative (146.21) and in the year 2007 it was negative (7.48) which indicates the ratio is increasing. The increasing ratio refers the company payoff their liability with growing of current asset.
  • Fixed Asset Turnover Ratio – The Fixed Asset Turnover Ratio in the year 2001 was 5.67 and in the year 2007 it was 5.14. The Ratio decline which shows a downward trend.
  • Inventory Ratio – The Inventory Ratio for the year 2001 was 8.85 and in the year 2007 it was 7.02. The Ratio decline during the period which shows a downward trend.

Profitability Ratio – The Gross profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit Ratio, Net Profit to Net Worth Ratio, Earning per Share, Return on Investment, Return on Capital Employed and Overall Profitability Ratio.

  • Gross Profit Ratio – The Gross Profit Ratio for the year 2001 was 17.71 and in the year 2007 it was 15.92. The Ratio decline which indicate downward trend.
  • Operating Ratio – The Operating Ratio for the year 2001 was 84.38 and in the year 2007 it was 86.25. The Ratio increases in the year 2007 in comparison to 2006. The increase of ratio refers may be increase in Net sales and decrease of operate cost.
  • Operating Profit Ratio – The Operating Profit Ratio for the year 2001 was 15.62 and in the year 2007 it was 13.75. The ratio decline which shows downward trend.
  • Net Profit Ratio – The Net Profit Ratio for the year 2001 was 14.04 and in the year 2007 it was decrease to 12.90. The Ratio shows a downward trend.
  • Net Profit to Net worth Ratio – The Net Profit to Net worth Ratio for the year 2001 was 51.15 and in the year 2007 it was increase to 117.46. The increase of ratio may be shareholder fund decreases and the Net profit increases in the year 2007.
  • Earning per Share – The Earning per Share for the year 2001 was 7.46 and in the year 2007 it was 8.84. The ratio in the mid of the period is fluctuating. The increase in ratio indicates the net profit increases in 2007 were capital stock decreases.
  • Return on Investment Ratio – The Return on Investment Ratio for the year 2001 was 50.63 which increases in the year 2007 were 122.92. The increase may be fluctuation in shareholders fund. The Net Profit increases in the year 2007.
  • Return on Capital Employed – The Return on Capital Employed for the year 2001 was 28.73 and in the year 2007 it was 29.75. The increase indicates the shareholder return is getting better return.
  • Overall Profitability Ratio – The Overall Profitability Ratio in the year 2000 was 30.6 which increase in the year 2007 as 32.38. The increase may indicate that the total asset and net profit increases. In the mid of the year the ratio decreases as there is fluctuation in total asset and net profit.

The Ratio which is calculated for finding out the financial position of Hindustan Unilever Ltd shows the downward trend. The Ratio shows the financial position of Hindustan Unilever is sloping down. The performance is not better as well as not sound. Although the Return on Capital Employed ratio shows increase, but this reflect the shareholders fund. The increase in fluctuating leads the decrease in return from investment. The ratio of Return on capital Employed also increases, but still the shareholders fund decreases which shows bad performance of company.

Analyzing the Shareholder value increase or decrease

Value Addition Method

In Value Addition Method the Abnormal Return and Cumulative Abnormal Return is calculated to find out the acquisition strategy of company. The shareholders value can be calculated as it increases or decrease or getting more benefit for which Abnormal Return and Cumulative Abnormal Return is calculated. Regression is calculated from which Beta is obtained. The Beta of company is 0.826.

Abnormal Return and Cumulative Abnormal Return – The Abnormal Return of Hindustan Unilever Ltd goes both positive and negative. The graph shows that from 01/01/2003 to 01/01/2004 the abnormal return goes in negative and then between 01/01/2004 to 01/05/2004 the abnormal return goes positive and then afterwards the return fluctuates in both positive return and negative return. This indicates the investor or shareholders are unhappy.

The Return from investment fluctuates therefore the value of mergers is not adding any value to its shareholders. The Cumulative Abnormal Return shows negative from 01/01/2003 to 01/09/2007. As the Cumulative Abnormal Return shows negative it can clearly states that the Acquisition strategy of Hindustan Unilever Ltd was wrong. The Investor expectation were not fulfilling from their investment. The company is successful in their investment but the return from investment is less.

The Value Addition Method shows that the investors were unhappy with their return. The investment is done in huge form but the return is less. The Acquisition strategy of Hindustan Unilever Ltd went wrong. The shareholders value is been decrease after the series of Mergers and Acquisitions.

Analyzing Market share of Hindustan Unilever Ltd

The Market share is analysed through different business of Hindustan Unilever Ltd. The business shows how the competitor eating and heating the market share of Hindustan Unilever Ltd. The Rivalry Company were using different strategy to increase their market share. The Analysed businesses of Hindustan Unilever Ltd are as follows:

  • Soap & Detergent Business – The market share of Soap & Detergent business is decline by 2.4% in term of value and 2.6% in term of unit sold. The Godrej Consumer Products Ltd (GCPL) is considering as the biggest rivalry of Hindustan Unilever Ltd. The market share of GPCL in Soaps & Detergent is grown by 24.3%.
  • Toothpaste Business – The Market Share of Toothpaste Business decline against its Rivalry Company. The market share of Toothpaste Business of Hindustan Unilever Ltd is growing by 11%. The Dabur India Ltd and Colgate-palmolive were considered as the biggest Rivalry Company in Toothpaste business of Hindustan Unilever Ltd.
  • Skin Care Business – The Market Share of Skin Care Business decline by 0.4% against its Rivalry Company in quarter of June 2007. The company were planning to relaunch the product under new strategy.
  • Tea & coffee Business – The Tea & coffee Business of Hindustan Unilever Ltd decline by 18.6% against its rivalry company. Tata Tea Ltd is considering as top competitor in Tea & coffee business of Hindustan Unilever Ltd.

2.0 Conclusion from Research Made

There are two results which are obtained from this research. The first Result is obtained from Primary Research. In the Primary Research the process of interview were conducted. The Interview shows that the company is doing well after it’s merged. The Acquisition Strategy was successful. The results were showing positive towards company shareholders and investors. Therefore in Primary research the result shows the success of mergers and acquisitions of Hindustan Unilever Ltd.

The Second result is obtained from Secondary Research. The Secondary Research is obtained from Annual Report, Journal, Newspaper and various articles on mergers and acquisition of Hindustan Unilever Ltd. The Balance sheet and Profit and Loss account of Hindustan Unilever Ltd is analysed. The Secondary research of results shows that the financial position of company is not good.

The Acquisition strategy fails. The market share of Hindustan Unilever Ltd went down. The company’s value is not adding to its shareholder. Therefore in Secondary research the result shows the Failure of mergers and acquisition of Hindustan Unilever Ltd.

The financial of Hindustan Unilever Ltd shows a downward trend. The Ratio Analysis shows that Performance of company went down from the year 2001 to the year 2007. As Hindustan Unilever Ltd went through various merger Process then it still fails to improve its financial position. Therefore the acquisition strategy made by Hindustan Unilever Ltd went wrong.

Through Value Addition method it is been analyse that the value of shareholders of Hindustan Unilever Ltd is decreasing. The Company’s is not adding their value to its Shareholder. The Market share of Hindustan Unilever Ltd slopes down. The company’s investor is unhappy with their expected return.

The Research shows the company is facing a tough competition in the market. The local national and international competitor puts barrier in company’s performance and progress. The study period of research is made from the year 2001 to 2007 were the performance of company is lacking. The result which shows is against from Hypothesis of this Research.

The Mergers and Acquisitions for Hindustan Unilever Ltd were unsuccessful. The motives of Merger and the Acquisition strategy fail in the case of Hindustan Unilever Ltd.

3.0 Suggestions

  • The financial Position of Hindustan Unilever Ltd decrease which is analysed through Ratio Analysis in research. The company should analyse its financial position by payoff its liability in the short period. The company should increase its current asset should maintain funds and reserve. The production cost is high were the company should reduce its operating cost. The company should analyse their liability as the liability increases the profit of the company decreases. The company should avoid their short term borrowing as it reflects the investment and productivity of asset.
  • The Acquisition strategy of company fails as the company has not analysed the market competition. The one of the reason for the failure strategy is the company is merged with different company in limited period. The company has not analysed before it merged. The company want to dominate as a single entity in the market for which it merged with its rivalry company without analysing the situation of market. The company should analyse the competitor market and should analyse the situation of company which it is going to merged.
  • The company’s value is not adding its value to shareholders value. The company’s Abnormal Return is both negative and positive. This fluctuate indicates the value of shareholder decreases. The Cumulative Abnormal Return shows a negative return which shows the company’s investor is unhappy with the return of the company. The company should analyse such Fluctuation for generating more return to shareholders.
  • The Market share of Hindustan Unilever Ltd slopes down. The reason may be company is focusing in brand portfolio. The company is focusing more in rapid growth without analysing the competitor strategy. The company should analyse it small and big competitor. The company should analyse its competitor strategy with competitor market.
  • The company show concentrate in High quality low price strategy. The new product should introduce with a strong distribution channel. The company should introduce new innovative product with brand strategy. As the company covers the rural area therefore company should have a strong communication channel to introduce the new innovative product.
  • The company should adopt the SWOT analysis to analyse the competitor market. The Cost cut leadership strategy should adopt for costing the new innovative brand product. The SWOT analysis helps in analysing the company’s and competitor markets Strength, Weakness, Opportunities and Threat. Through SWOT analysis the company can make a proper and correct decision.

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Websites:-

  • http://hul.co.in/knowus/manage_structure.asp
  • http://hul.co.in/knowus/past_milestones.asp
  • http://hul.co.in/knowus/present_stature.asp
  • http://www.livemint.com/2007/08/09000855/Hindustan-Unilever8217s-mar.html
  • http://www.naukrihub.com/india/fmcg/top-companies/hindustanunilever.html

Bibliography

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