KARACHI, March 18: Pharmaceutical and banking sectors are the pioneers of Mergers & Acquisitions in Pakistan, the concept having caught on from a global trend, but are M&A successful or do they only “serve as a bandwagon to increase the usage of terms such as right sizing, downsizing, restructuring, rescheduling and golden handshakes?”.

Interesting questions such as those were raised by speakers and students at a seminar on “Mergers & Acquisitions: How to make them work?”, conducted by the Management Society of Institute of Business Administration on Tuesday.

Mr Danishmand, director, IBA, stated that M&A activity had its benefits, but said that it had more often failed then succeeded. He advised careful study, planning, use of technology and improved laws for protection of shareholders and legal safeguards for workers to ride out the challenges posed by M&A.

Mohammad Ejaz, head of Investment Banking at the Union Bank, made a strong point when advancing the debate by earlier speakers, he said that in conducting the M&A transactions, cost/benefit analysis must surely be done, for it must make economic sense, but it would be unfortunate to ignore the human side of it all.

He said integrating the accounting and technological areas was the easiest part of the job in mergers, but the most difficult was how to integrate human resources. “Large heartedness and open communication,” he said, “should be important considerations.”

He pointed out that the Union Bank had acquired the Bank of America; local franchise of the American Express Card; the Emirates Bank; a bank in Sri Lanka, one in South Africa and another in Indonesia. All of that was to increase his bank’s economical size, associate it with leading brands and make inroads in consumer banking, he said.

Speakers identified inadequacies in the listed companies (substantial acquisition of voting shares and takeover) Ordinance, 2002. Zahid Jamil, Barrister-at-law at Jamil & Jamil, said the courts had no problems in approving the M&A transactions where the terms were just, fair and reasonable. But in cases, where ‘conflict of interest’ was proved (he cited two examples), the court threw out the cases.

Zahid Jamil observed that in the English Law anyone acquiring “substantial shareholding” of 30 per cent had to make an open bid to buy from all shareholders, who wished to sell, which sounded to be equitable, giving everyone a level playing field. “But in our law anyone taking a 10 per cent stake need to do no more than disclose his holding.” He said there had been only two cases of ‘hostile takeover’ in the country: those of the Adamjee Insurance and the Engro Chemicals.

Iqbal Ismail, chairman, Ace Securities, added that ‘hostile takeovers’ attempts were unlikely to succeed in the country, due to closely held shareholding by sponsors.

Ali Ansari, chief executive officer at the AKD Securities, suggested that the listing regulations of the stock exchanges should add provisions for shareholders’ protection that were missing in the “takeover law”.

Iqbal Ismail discussed what the acquisition was?. He said it was taking over the control of a target company so as to be able to influence its decision-making. He elaborated that one seat on the board of the company gives a foothold and five seats, an absolute control over the company. He said the timing for acquisition was when visible cracks were appearing in the ruling coalition (board) and the move should be made when the stock market was depressed.

Dr Abrar Baig, head of human resources, the National Bank of Pakistan, discussed integration of the National Development Finance Corporation (NDFC) into the NBP, which he clarified was amalgamation and not merger or acquisition. He said the government had asked the NBP to takeover the NDFC to protect depositors’ interest. Prior to that, on April 30, 2002, the NDFC had been asked to cease all activities and it was saddled with non-performing loans of Rs16 billion.

Masood Jaffery, director marketing and sales, the GlaxoSmithKline highlighted local and global mergers in pharmaceutical sector and said that there had been four mergers in as many years. He disclosed that almost a quarter of the global pharmaceutical market constituted sale of antibiotics.