Merger & Acquisition

Merger
A merger occurs when two or more companies combine to form a single entity. The goal is
often to achieve synergies, reduce costs, expand market reach, or gain a competitive
advantage. Mergers usually happen between companies of similar size and operations.

Acquisition
An acquisition is when one company purchases another company, gaining control over its
assets, operations, and management. Unlike a merger, in an acquisition, the acquired
company may lose its identity and operate under the acquiring company’s name.

Why Take Over, Merge, or Acquire?

Companies engage in mergers and acquisitions (M&A) for several reasons:

1. Growth Expansion – To enter new markets or increase market share.

2. Synergy – To achieve cost savings and operational efficiencies.
3. Diversification – To reduce risk by entering different industries.
4. Eliminate Competition – To reduce market competition and gain a dominant
position.
5. Financial Benefits – To improve profitability and shareholder value.

Types of Mergers and Acquisitions

1. Horizontal Merger – Between companies in the same industry (e.g., two banks
merging).
2. Vertical Merger – Between companies in different stages of production (e.g., a car
manufacturer merging with a tire company).
3. Conglomerate Merger – Between unrelated businesses (e.g., a food company
merging with an IT company).
4. Market Extension Merger – Between companies in the same industry but different
markets.
5. Product Extension Merger – Between companies selling related products.
6. Friendly Acquisition – When both companies agree to the acquisition.
7. Hostile Acquisition – When one company forces the takeover against the will of the
target company.

Purchase Consideration in M&A

Purchase consideration is the amount paid by the acquiring company to acquire another
company. It can be paid in the form of:

Cadh Payment – Paying a fixed amount in cash.

Share Exchange – Giving shares of the acquiring company in exchange for the target
company’s shares.

Hybrid Payment – A combination of cash and shares.

Stages of Merger and Acquisition

1. Strategy Development – Identifying goals and selecting target companies.

2. Screening & Target Selection – Evaluating potential merger or acquisition
candidates.
3. Due Diligence – Examining financials, assets, liabilities, and risks.
4. Valuation & Negotiation – Determining the worth and negotiating terms
5. Regulatory & Legal Compliance – Obtaining approvals from regulatory bodies.
6. Integration Planning – Merging operations, management, and culture.
7. Post-Merger Integration – Monitoring performance and making necessary
adjustments.

Challenges in Mergers and Acquisitions

1. Cultural Differences – Merging different corporate cultures can lead to conflicts.

2. Employee Resistance – Employees may resist changes, leading to productivity
loss.
3. Financial Risks – If not planned well, M&As can result in financial losses.
4. Regulatory Hurdles – Government approvals and legal issues can delay deals.
5. Integration Issues – Merging operations, systems, and management may be
difficult.

List of Companies in Pakistan Involved in M&A

Some examples of mergers and acquisitions in Pakistan include:

1. MCB Bank & NIB Bank – MCB acquired NIB Bank in 2017.
2. Engro Corporation & Engro Foods – Engro Corp sold a major stake in Engro Foods
to FrieslandCampina.
3. UBL & Citi Bank Pakistan Operations – UBL acquired Citi Bank’s consumer banking
division.
4. Bank Alfalah & KASB Bank – Bank Alfalah acquired KASB Bank in 2015.
 5. Jazz & Warid – Merger of two telecom companies to form Pakistan’s largest telecom
network.

ESG (Environmental, Social, and Governance)

ESG is a model that evaluates how well a company manages its business while considering
environmental, social, and governance factors. It reflects a company’s impact on society, its
treatment of employees, and ethical business practices.

Environmental: Focuses on climate change, pollution, and biodiversity.

Social: Covers labor practices, human rights, and community engagement.

Governance: Assesses board diversity, executive compensation, and anti-corruption policies.

Sustainable Finance

Sustainable finance involves making investment decisions that consider environmental, social,
and governance (ESG) factors. It helps investors fund projects that promote sustainability and
long-term economic development.

Importance of Sustainable Finance

Supports eco-friendly projects.

Attracts responsible investors.

Helps businesses build a good reputation.

Promotes long-term economic sustainability.

Difference Between ESG and Sustainable Finance

ESG is a broad concept evaluating a company’s sustainability efforts.

Sustainable finance applies ESG principles to investment decisions and financial projects.

History of Sustainable Finance

1960s-1970s: Ethical investing emerged; investors avoided harmful industries.

1980s-1990s: Corporate Social Responsibility (CSR) became popular.

2000s: Global Reporting Initiative (GRI) was established.

2015: UN introduced Sustainable Development Goals (SDGs).

Mid-2000s: Green bonds were introduced to fund eco-friendly projects.

Practices of Sustainable Finance

1. Green Bonds: Investments in renewable energy and sustainable projects (e.g., Pakistan’s
Indus Bond).
2. Impact Investing: Funding businesses that benefit society (e.g., Bill & Melinda Gates
Foundation’s vaccine programs).
3. Responsible Lending: Ensuring loans support socially responsible projects (e.g.,
European Investment Bank’s environmental checks).

ESG Practices

Environmental: Renewable energy projects (e.g., Quaid-e-Azam Solar Park, Gharo Wind
Corridor).

Social: Community welfare initiatives (e.g., The Citizens Foundation).

Governance: PSX aligning companies with ESG guidelines and anti-corruption policies.

Contribution of ESG and Sustainable Finance

Attracts ethical investments.

Enhances risk management.

Improves financial performance.

Promotes long-term economic stability.

Encourages innovation in eco-friendly technologies.

Awareness and Promotion

Educational campaigns to increase understanding of ESG.

Investor activism pushing for sustainable business practices.

Government regulations encouraging ESG compliance.

Youth involvement driving demand for sustainability initiatives.

 Pakistan Stock Exchange (PSX)
The stock market plays a vital role in financial investments and serves as an indicator of a
country’s economic performance. The performance of a stock market depends on factors such as
political stability, law and order, and macroeconomic indicators like interest rates and inflation.
Stock prices are highly volatile, which means investors can either make a profit or incur losses.
To minimize risk, investors create diversified portfolios, ensuring that losses in one investment
are offset by gains in another.

Key Features of PSX

The Pakistan Stock Exchange (PSX) was formed in 2016 by merging the Karachi, Lahore, and
Islamabad stock exchanges.

Main Index: KSE-100 Index (benchmark for market performance)

Other Indices: KSE-30, KMI-30 (Islamic stocks), PSX Dividend Index, etc.
Trading System: Automated Trading System (ATS) for transparency and efficiency

Market Segments:

Regular Market (listed companies)

GEM Board (Growth Enterprise Market for small/medium businesses)

Debt Market (bonds, Term Finance Certificates (TFCs), Sukuks)

Historical Background of PSX

The Pakistan Stock Exchange (PSX) was originally established as the Karachi Stock Exchange
(KSE) on September 18, 1947. It was incorporated as a legal entity on March 10, 1949.

In October 1970, the Lahore Stock Exchange (LSE) was established to serve investors in Lahore
and surrounding areas.

In October 1989, the Islamabad Stock Exchange (ISE) was set up to facilitate investors in
northern Pakistan.
Initially, KSE had only five listed companies with a total capital of Rs. 37 million. Today, PSX
has 546 listed companies with a market capitalization of Rs. 7.692 trillion.

Integration of Stock Exchanges

Until 2012, all three stock exchanges operated independently with separate management, trading
systems, and indices. In March 2012, the Stock Exchanges (Corporatization, Demutualization,
and Integration) Act 2012 was passed, leading to the integration of the three stock exchanges. On
January 11, 2016, they were merged into Pakistan Stock Exchange Limited (PSX).

In 2016, a 40% equity stake in PSX was sold to a Chinese consortium.

In June 2017, 20% shares were offered to the general public, and PSX was listed as a public
entity.

Types of Markets in PSX

1. Regular/Ready Market: Stocks of all listed companies are traded, with settlement in
T+2 days (trade day + 2 days).
2. Odd Lot Market: Investors can trade in securities with smaller lot sizes (less than 500
shares).
3. Futures Market: Investors trade contracts agreeing to buy or sell stocks at a future date
4. Square-up Market: Failed deliveries of securities are settled here.
5. Stock Index Market: Investors trade cash-settled futures based on stock indices.
6. Negotiable Deal Market: Deals between two or more parties where terms can be
revised.
7. Margin Trading: Investors buy securities using a mix of personal funds and borrowed
funds from brokers.

Major Indices of PSX

1. KSE-100 Index: Represents the top 100 companies based on market capitalization (85%
of PSX’s total market capitalization).
2. KSE-30 Index: Includes the top 30 most liquid stocks on PSX.
3. PSX Dividend 20 Index: Tracks the top 20 dividend-paying companies.
4. All Share Index: Represents all listed companies on PSX.
5. NITPG Index: Tracks the top 50% free-float market capitalization stocks.
6. UPP9 Index: Tracks the top 9 companies with the highest free-float market capitalization
(excluding oil and gas).
 7. NBPPG Index: Tracks the top 15 companies with the highest free-float market
capitalization.

Role of PSX in Economic Growth

The Pakistan Stock Exchange plays a crucial role in Pakistan’s economy by:

Providing Capital for Businesses: Companies raise funds by issuing shares.

Reflecting Economic Performance: The stock market serves as a barometer of economic

activity.

Encouraging Investment: Investors can participate in economic growth through stocks, bonds,
and funds.

Attracting Foreign Investment: A stable and growing stock market encourages international
investors.

How to Open an Account with a Broker?

Top Brokers in Pakistan

1. AKD Securities Ltd.

2. Arif Habib Limited
3. JS Global Capital Limited
4. Ktrade Securities Ltd.
5. Mohammad Munir Mohammad Ahmed Khanani Securities Ltd.
Account Opening Process
To open an account with a broker:

1. Select a broker and visit their website.

2. Fill out the online registration form, providing:
• Full Name
• Father’s Name
• CNIC
• Email Address
• Account Type
• Linked Bank Account Details
 3. Submit the required documents.

Required Documents for Account Opening

• CNIC Copy
• Bank Statement
• Salary Slip
• Utility Bill Copy
• Next of Kin CNIC Copy (e.g., Father/Brother)
• Deposit Cheque

Central Depository Company (CDC)

The Central Depository Company (CDC) is the main securities depository in Pakistan. It
manages electronic securities and ensures smooth trade settlements.

Types of Accounts in CDC:

1. Sub-Account: Managed by a broker; allows short-term trading.

2. Investor Account: Managed by the investor for long-term securities holding.

National Clearing Company of Pakistan Limited (NCCPL)

The National Clearing Company of Pakistan Limited (NCCPL) provides clearing and settlement
services for PSX. It ensures transparent and efficient trade execution.

Trade Settlement in PSX

1. Intraday Trading: Buying and selling stocks within the same day.
2. Delivery Trading (T+2): Settlement occurs two days after the trade (T+2).

Awareness and Contribution of PSX

Stock Market Indices Contributio

1. Economic Contribution

Reflects economic health and investor confidence.

Encourages investment and liquidity.

Attracts foreign investors.

2. Corporate Contribution

Helps businesses raise capital.

Provides valuation benchmarks for mergers and acquisitions.

3. Government Contribution

Helps policymakers assess economic conditions.

Generates tax revenue through trading activity.

Investor Awareness Initiatives

Workshops & Seminars

Stock Market Simulations

Financial News & Media Coverage