MERGER AND ACQUISITION

Submitted By:PRIYA SINGH

MERGER

Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence.

Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgation.

ACQUISITION

Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company

TAKEOVER

In business, a takeover is the purchase of one company (the target) by another (the acquirer, or bidder.

A ‘takeover’ is acquisition and both the terms are used interchangeably.

PROCEDURE FOR MERGER AND ACQUISTION:

PURPOSE OF MERGER AND ACQUISTION:

Procurement of supplies:

To safeguard the source of supplies of raw materials or intermediary product;

To share the benefits of suppliers economies by standardizing the materials.

Revamping production facilities:

To standardize product specification, improvement of quality of product, expanding;

  To reduce cost, improve quality and produce competitive products to retain and

Improve market share.

Market expansion and strategy:

•To eliminate competition and protect existing market;•To obtain new product for diversification or substitution of existing products and to enhance the product range;•To reduce advertising cost and improve public image of the offeree company;

Financial strength:

•To improve liquidity and have direct access to case; •To avail tax benefits

General gains:

•To improve its own image and attract superior managerial talents to manage its affairs;•To offer better satisfaction to consumers or users of the product.

•Own developmental plans:

•A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc.

•Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations.

Different Types Of Merger

TYPES OF TAKEOVER

Friendly Takeover:Both the companies approve acquisition

under friendly under friendly term.

Reverse Takeover:A private company takeovers a public

company.

Hostile takeover:Here as the name suggests, the entire

process is done by force.

Listed company

Firm whose shares are listed (quoted) on a stock exchange for public trading which is also called quoted company is termed as listed company.

COMPARATIVE ANALYSIS OF MERGER UNDER

COMPANIES ACT 1956 AND 2013:

Objection to the Scheme of Arrangement

Under the Companies Act, 1956, any shareholder, creditor or any ‘interested party’ may object to the scheme of the arrangement before a Court if he thinks that that the proposed scheme is adverse to his interests.

•Now, the Companies Act, 2013 has sought to put a threshold for making an objection to the scheme of arrangement. The new act puts an arduous requirement that person holding at-least 10 % shares or at least 5% of the total debt outstanding to the company can only object to the proposed scheme.

•There has been some relief given to the minority shareholders.

Cross Border Mergers Under the Companies Act, 1956, while

foreign companies can be amalgamated into an Indian company, the reverse is not permissible i.e. an Indian company cannot merge/amalgamate with a foreign company.

The new Companies Act, 2013 envisages removing this barrier. It allows for merger both ways

Establishment of NCLT (National Company Law Tribunal)

Under the old Companies Act, schemes of arrangement have to be mandatorily approved by the High Court which has jurisdiction over the concerned companies involved. For instance, the average time taken for a scheme of arrangement to be implemented from start to finish is no less than 6 months, and in numerous cases the schemes of arrangement have taken a couple of years to be approved by the High Court.

Thus, the new provision which grants jurisdiction to the Tribunal (NCLT) on matters pertaining to oversight of schemes of arrangement is a very commendable step. This would ensure that a specialized body dealing with cases under company and related would lead to greater efficiency, fairness and apt regulation & oversight.

Change in the procedure meathodology under the new companies act 2013

Regulatory/Third party approvalsApproval of the Scheme through

postal ballotValuation ReportObjectionsAccounting StandardsMerger of a listed company into an

unlisted one.

CASE STUDY

Miheer H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506

Important rules laid down by the Supreme Court

The merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement .

The court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority

The court cannot, therefore, undertake the exercise of scrutinizing the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties Principles of sanctioning the Scheme.

Principles laid down by the Supreme Court:

That the provisions of the statute have been complied with.   That the class was fairly represented by those who attended the

meeting and that the statutory majority are attended the meeting and that the statutory majority are acting bona fide

  That the arrangement is such as a man of business would

reasonably approve .  There should not be any lack of good faith on the part of the

majority.  The scheme not contrary to public interest or any other law.

OTHER REFFERED CASE:

S.K Gupta & Anrs vs. K.P Jain & Arns

Alstom Power Boiler Ltd. Vs State Bank Of India & Ors

S.Viswanathan vs. East India Distilleriess & sugar factories ltd.

CONCLUSION:

Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. Investors can take comfort in the idea that a merger will deliver enhanced market power.

M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals.

Continued….

•The 2013 Act offers comprehensive and better transparency ensuring protection of stakeholders' interest, while simultaneously avoiding frivolous objections.

•It would be fair to say that the 2013 Act seeks to streamline and make M&A more smooth and transparent. The new provisions should make it easier for corporations proposing mergers as it spears to have a good system of checks & balances to prevent abuse of these provisions.