Mergers & Acqusitions

8/6/2019 Mergers & Acqusitions

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Table Of Contents

Countrys perspective 2Mergers 2Types of mergers 3Acquisitions 4Mode of acquisition 4Level of control in acquisition 4Benefits ofMergers and Acquisitions: 5Odds in the Mergers and Acquisitions 6Legal Procedure in Pakistan 7Procedure ofmergers 8Procedure of Acquisitions 10Example of Mergers and Acquisitions 14Scheme of Amalgamation Attached


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Mergers and Acquisitions in Pakistan.

Countrys PerspectiveMergers in Pakistan are a recent phenomenon, and the activity is still in itsinfancy stage. It has been observed that the total deals done in the countryare quite negligible as compared to the developed countries. The activity issuffering in Pakistan due to various deterrents, including inflation, cost ofdebt, lack of synergistic operating economies, lack of motivation ofshareholders, small industrial base, insider trading and unfair tradepractices.

S

ince today's global business environment is becoming more complex, oneof the best ways for the companies to seek growth and survival, is throughmerging with another company or acquiring other companies.

Mergers

In Business or Economics, a merger happens when two companies, often of

about the same size, agree to go forward as a single new company rather

than remaining separately owned and operated. It can be termed as atransaction whereby two companies agree to integrate their operations on arelatively equal basis, because they have resources and capabilities thattogether may create a stronger competitive advantage. Mergers arecommonly voluntary.

Merger can resemble a takeover but result in a new company name (oftencombining the names of the original companies) and in new branding.

The word mergers refers to the aspect of corporate strategy, corporatefinance and management dealing with the buying, selling and combiningof different companies that can aid, finance, or help a growing company ina given industry grow rapidly without having to create another businessentity.


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Types Of Mergers

Following are the common types of mergers:

Horizontal mergersHorizontal mergers take place where the two merging companies

produce similar product in the same industry.

Vertical mergers

Vertical mergers occur when two companies, each working atdifferent stages in the production of the same good, combine.

Congeneric mergersCongeneric mergers occur where two merging companies are inthe same general industry, but they have no mutualbuyer/customer or supplier relationship, such as a mergerbetween a bank and a leasing company.

Conglomerate mergers

A merger between firms that are involved in totally unrelated businessactivities. There are two types of conglomerate mergers:

Pure: Pure conglomerate mergers involve firms with nothing in common.

Mixed: Mixed conglomerate mergers involve firms that are looking forproduct extensions or market extensions.


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Acquisitions

An acquisition is a transaction where one of the enterprises, the buyer,

obtains control over the net assets and operations of another enterprise, the

seller, in exchange for the transfer of assets or issue of equity.

Mode of acquisition

A business entity can be acquired in its entirety either by way of an asset

deal or a share deal.

Asset deal

Under the asset deal, the buyer directly acquires the assets and liabilities

from the seller. The transaction may involve buying of all or selected

assets / liabilities of the seller. The book value of the net assets purchased

is recorded in the books of buyer at the fair market value. The excess of

purchase price over fair value of net assets acquired is recorded as

goodwill in the books of buyer.

Share deal

Under the share deal, the buyer acquires the shares in the corporate entity.

The share deal is generally less complex and time consuming than the asset

deal.

Level of control

The most important factor in formulating the strategy for acquisition is to

determine the level of control desired by the acquirer. The benchmark

levels of control that are generally relevant for an investor are as follows:


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Shareholding higher than 25% provides a shareholder the power toblock / veto a special resolution, which requires 75% or more votes.

Special resolutions are required for important business matters to be

approved by shareholders e.g. investment in associated companies,

changes in articles and memorandum, removal of chief executive,

voluntary winding up, etc.

Shareholding higher than 50% generally enables the beneficial ownerto elect more than 50% of the board of directors and to appoint a chief

executive of its choice thus enabling day to day management control.

Shareholding higher than 75% is generally the maximum that isneeded to execute all decisions, including special resolutions. It is theconverse of the 25%+ benchmark.

Benefits ofMergers and Acquisitions:

Corporate Mergers and Acquisitions represent part of a corporate/business strategy used by many companies to achieve various objectives.There can be a number of motives for a company to pursue a strategy ofMerger. Following motives are generally considered before Mergers,

Large enough size to realize economies of scale, Diversification to reduce the risk of business, Desired synergies, Taxation advantage not available without merging, Increased efficiencies, Reduction in administrative cost and overcoming critical lacks, Risk spreading,

Increased revenue and utilize unutilized market power/ share, Eliminating competition and to achieve monopoly benefits, Creating opportunities for cross-selling, Displacing an existing management, Efficient access to capital markets


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Odds in the Mergers and Acquisitions:

Corporate Mergers and Acquisitions do not always result in the success;indeed many result in a net loss of value due to certain inherent problems.

These problems in achieving success of mergers inter-alia includes highsocial and financial costs, duplication of activities, incompatibility ofsystems, people and culture, etc. There might also be a resistance byworkers, directors and shareholders of the target company, and even insome cases, by the government in the interest of the country. In addition,market of the target company might resent a sudden take over andconsider going to other suppliers for their goods or services.

However, the companies entering into such arrangements, might overcome

or mitigate these odds by exercising due diligence. Basically, theparameters that need to be considered while evaluating mergers arestrategic, tactical, fiscal and human. One has to mitigate the risk involvedand get the right decision for success of Mergers and Acquisitions

The complex procedure for mergers and takeovers

There are no specific guidelines or codes on takeovers and mergers inPakistan. The mergers and acquisitions activity that takes place in Pakistan

is governed through the Companies Ordinance 1984.

There is no Take-over Code that would govern the mergers andacquisitions activities in the corporate sector. The whole process of mergerin Pakistan is tedious, time consuming and complex and can take betweenthree months to one year.

The beginning to a merger in Pakistan can be made through commonagreement between the transferor and the transferee, but a simple

agreement would not provide a legal cover to the transaction unless itcarries the sanction of the court for which the procedure laid down undersection 283- 287 of the companies ordinance 1984 should be followed.

The procedure is quite complex and a number of tedious steps have to betaken to enforce a scheme of merger.


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Legal Procedure in Pakistan

In Pakistan,S

ections 284 to 289 of the Companies Ordinance, 1984 (theOrdinance) and rules, 55 to 68, contained in the Companies (Courts)Rules, 1997, deals with the requirements for Mergers and Acquisitions of

companies.

Apply for application in court.

An application is required to be made under Section 284 of the Ordinanceto the High Court by all the merging companies for the purpose.

Prepare scheme ofamalgamation

The preparation of a scheme of amalgamation/merger by the companies,which have arrived at a consensus to merge, is the most critical steptowards undertaking the activity. There is no specific form but it generallycontains rationale for activity, financial information, valuations of sharesand involved determinations, any pending litigation, etc

Valuation and pricing ofshares

Another focus area for the companies, is the valuation and pricing of sharesthat must be fair and reasonable. The purpose of valuation of shares ofcompanies is to ascertain the swap ratio to be used for the exchange ofshares of the merging company or companies with the surviving company.


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Procedure ofMergers

(1) Where an application is made to the Court under section 284 for the

sanctioning of a compromise or arrangement proposed between a company

and any such person as are mentioned in that section, and it is shown to

the Court that the compromise or arrangement has been proposed for the

purposes of or in connection with a scheme for the reconstruction of any

company or companies or the amalgamation of any two or more

companies or the division of any company into two or more companies,

and that under the scheme the whole or any part of the undertaking,

property or liabilities of any company concerned in the scheme (in this

section referred to as a "transferor company") is to be transferred to anothercompany (in this section referred to as "the transferee company"),

The Court may, either by the order sanctioning the compromise or

arrangement or by any subsequent order, make provision for all or any of

the following matters, namely:-

(a) The transfer to the transferee company of the whole or any part of the

Undertaking and of the property or liabilities of any transferor company;

(b) The allotment or appropriation by the transferee company of any

shares,

Debentures, policies, or other like interests in that company which under

the compromise or arrangement are to be allotted or appropriated by that

company to or for any person;

(c) The continuation by or against the transferee company of legalproceedings pending by or against any transferor company;

(d) The dissolution, without winding up, of any transferor company;

(e) The provision to be made for any person who, within such time and in


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such manner as the Court directs, dissent from the compromise or

arrangement; and such incidental, consequential and supplemental matters

as are necessary to secure that the reconstruction or amalgamation is fully

and effectively carried out.

(2) Where an order under this section provides for the transfer of property

or liabilities, that property shall, by virtue of the order, be transferred to

and vest in, and those liabilities shall, by virtue of the order, be transferred

to and become the liabilities of, the transferee company, and, in the case of

any property, if the order so directs, freed from any charge which is, by

virtue of the compromise or arrangement, to cease to have effect.

(3) Where an order is made under this section, every company in relation

to

which the order is made shall cause a certified copy thereof to be delivered

to the registrar for registration within thirty days after the making of the

order, and if default is made in complying with this sub-section, the

company and every officer of the company who is knowingly and wilfully

in default shall be liable to a fine which may extend to one thousand

rupees.

(4) In this section the expression "property includes property, rights and

powers of every description, and the expression "liabilities" includes duties.

(5) In this section the expression " transferee company" does not includeany

company other than a company within the meaning of this Ordinance, and

the expression "transferor company " includes any body corporate, whether

a company within the meaning of this Ordinance or not.


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Procedure of Acquisitions

Following is the procedure of acquiring of shares of the companies.

(1) Where a scheme or contract involving the transfer of shares

or any class of shares in any company (in this section referred to as "the

transferor company") to another company (in this section referred to as

"transferee company") has, within one hundred and twenty days after the

making of the offer in that behalf by the transferee company, been

approved by the holders of not less than nine-tenths in value of the shares

whose transfer is involved (other than shares already held at the date of the

offer by, or by a nominee for, the transferee company or its subsidiary), thetransferee company may, at any time within sixty days after the expiry of

the said one hundred and twenty days, give notice in the prescribed

manner to any dissenting shareholder that it desires to acquire his shares;

when such a notice is given the transferee company, shall, unless, on an

application made by the dissenting shareholder within thirty days from the

date on which the notice was given, the Court thinks fit to order otherwise,

be entitled and bound to acquire those shares on the terms on which, under

the scheme or contract, the shares of the approving shareholders are to be

transferred to the transferee company: Provided that, where shares in the

transferor company of the same class as the shares whose transfer is

involved are already held as aforesaid by the transferee company to a value

greater than one-tenths of the aggregate of the value of all the shares in the

company of such class, the foregoing provisions of this sub-section shall

not apply, unless

(a) The transferee company offers the same terms to all holders of the

shares of that class (other than those already held as aforesaid) whose

transfer is involved; and


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(b) The holders who approve the scheme or contract, besides holding not

less than nine-tenths in value of the shares (other than those already held

as aforesaid) whose transfer is involved, are not less than three-fourths in

number of the holders of those shares.

(2) Where, in pursuance of any such scheme or contract as aforesaid,

shares, or shares of any class, in a company are transferred to another

company or its nominee, and those shares together with any other shares

or any other shares of the same class, as the case may be, in the first

mentioned company held at the date of the transfer by, or by a nominee

for, the transferee company or its subsidiary comprise nine-tenth in valueof the shares, or shares of that class, as the case may be, in the first-

mentioned company, than-

(a) The transferee company shall, within thirty days from the date of the

transfer (unless on a previous transfer in pursuance of the scheme or

contract it has already complied with this requirement), give notice of that

fact in the prescribed manner to the holders of the remaining shares or of

the remaining shares of that class, as the case may be, who have not

assented to the scheme or contract; and

(b)Any such holder may, within ninety days from the giving of the notice

to him, require the transferee company to acquire the shares in question;

and where a shareholder gives notice under clause (b) with respect to any

shares, the transferee company shall be entitled and bound to acquire those

shares on the terms on which, under the scheme or contract, the shares ofthe approving shareholders were transferred to it, or on such other terms

as may be agreed, or as the Court on the application of either the transferee

company or the shareholders thinks fit to order.


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(3) Where a notice has been given by the transferee company under

subsection (1) and the Court has not, on an application made by the

dissenting shareholder, made an order to the contrary, the transferee

company shall, on the expiration of thirty days from the date on which the

notice has been given or, if an application to the Court by the dissenting

shareholder is then pending, after that application has been disposed of,

transmit a copy of the notice to the transferor company together with an

instrument of transfer executed on behalf of the shareholder by any person

appointed by the transferee company and on its own behalf by the

transferee company and pay or transfer to the transferor company the

amount or other consideration representing the price payable by thetransferee company for the shares which, by virtue of this section, that

company is men titled to acquire; and the transferor company shall

(a) There upon register the transferee company as the holders of those

shares;

And

(b) Within thirty days of the date of such registration, inform the

dissenting shareholders of the fact of such registration and of the receipt of

the amount or other consideration representing the price payable to them

by the transferee company: Provided that an instrument of transfer shall

not be required for any share for which a share warrant is for the time

being outstanding.

(4)Any sums received by the transferor company under this section shall

forthwith be paid into a separate bank account to be opened in a scheduled

bank and any such sum and any other consideration so received shall be

held by that company in trust for the several persons entitled to the shares


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in respect of which they said sums or other consideration were or was

respectively received.

(5) The following provisions shall apply in relation to every offer of a

scheme or contract involving the transfer of shares or any class of shares in

the transferor company to the transferee company, namely: -

(a) Every such offer or every circular containing such offer or every

recommendation to the members of the transferor company by its directors

to accept such offer shall be accompanied by such information as may be

prescribed;

(b) Every such offer shall contain a statement by or on behalf of the

transferee company disclosing the steps it has taken to ensure that

necessary cash will be available;

(c) Every circular containing or recommending acceptance of, such offer

shall be presented to the registrar for registration and no such circular shall

be issued until it is so registered;

(d) The registrar may refuse to register any such circular which does not

contain the information required to be given under clause (a) or which sets

out such information in a manner likely to give a misleading, erroneous or

false impression; and

(e)An appeal shall lie to the Commission against an order of the registrar

refusing to register any such circular.

(6) Whoever issues a circular referred to in clause (c) of sub-section (5)

which has not been registered shall be punishable with fine which may

extend to two thousand rupees.


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Example of mergers

2009

Sr

No.Name ofCompany

New name ofthe

company / merged with

Date of

Merger

Paidup

CapitalRatio

1International MultiLeasing

Al-Zamin LeasingModaraba

19/01/2009 54.000 [ 1 : 1 ]

2Network LeasingCorporation Limited

KASB Bank Limited 17/02/2009 175.000 [ 500 : 1 ]

3Automotive BatteryCompany Limited

Exide Pakistan Limited 04/05/2009 52.648 [ 9 : 1 ]

4Orix Investment BankLimited

Orix Leasing PakistanLimited

28/10/2009 1,089.000 [ 43 : 1 ]

2008

Sr

No.Name ofCompany

New name ofthe

company / merged withDate of

MergerPaidup

CapitalRatio

1PICIC Commercial BankLimited

NIB Bank Limited 01/01/2008 2,734.875[ 1 : 2.27

]

2Pakistan Industrial Credit &

Investment Corp.Ltd (PICIC) NIB Bank Limited 01/01/2008 4,152.720

[ 1 : 3.18

]

3Universal Leasing

Corporation Limited

Al-Zamin Leasing

Corporation Limited06/06/2008 210.000

[ 2.44 : 1

]

4Pakistan Slag Cement

Industries Limited

Zeal Pak Cement

Factory Limited11/06/2008 64.000 [ 5 : 1 ]

2007

Sr

No.Name ofCompany

New name ofthe company

/ merged with

Date of

Merger

Paidup

CapitalRatio

1 Guardian ModarabaB. R. R. International

Modaraba25/05/2007 244.695 [ 1 : 1.22 ]

2Crescent StandardInvestment Bank Ltd.

Innovative HousingFinance Limited

20/07/2007 1,257.610[ 0.005 :

1]

3Dewan Hattar CementLimited

Dewan Cement Limited 22/10/2007 2,565.000 [ 1 : 0.75 ]

4Suzuki MotorcyclesPakistan Ltd.

Pak Suzuki MotorCompany Ltd.

29/10/2007 438.989 [ 21 : 1 ]

5International Housing

Finance Ltd.KASB Bank Limited 22/11/2007 450.000 [ 1 : 1.30 ]


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2006

Sr

No.Name ofCompany

New name ofthe


MergerPaidup

CapitalRatio

1Second Tri StarModaraba First Tri Star Modaraba 10/04/2006 128.700 [ 1.817 : 1 ]

2ABAMCO Growth

FundUTP Growth Fund 06/06/2006 275.625

[ 1.845001 : 1

]

3ABAMCO Stock

Market FundUTP Growth Fund 06/06/2006 875.000

[ 0.970229 : 1

]

4ABAMCO Capital

FundUTP Growth Fund 06/06/2006 2,029.420

[ 0.898072 : 1

]

5WORLDCALLMultimedia Ltd.

WORLDCALL TelecomLtd.

09/06/2006 530.000 [ 1 : 1.27 ]

6

WORLDCALL

Broadband Ltd.

WORLDCALL Telecom

Ltd. 09/

06/2

006

1,500

.000 [ 1 : 1

.09

]

7WORLDCALLCommunication Ltd.

WORLDCALL TelecomLtd.

09/06/2006 1,831.702 [ 1 : 1.42 ]

8 Modaraba A1- Tijarah Modaraba A1- Mali 11/07/2006 75.778Certificate [

91 : 2 ]

9Atlas Investment Bank

LimitedAtlas Bank Limited 26/07/2006 506.024 [ 1 : 3.14 ]

10Pakistan Papersack

Corporation Ltd.Thal Limited 04/08/2006 68.993 [ 3.07 : 1 ]

11First Allied Bank

ModarabaAllied Bank Limited 25/08/2006 350.000 [ 1 : 024 ]

12Colony Textile MillsLimited

Colony Mills Limited 28/08/2006 250.000 [ 1 : 9.50 ]

13 Union Bank LimitedStandard Chartered BankLtd.

29/12/2006 3,387.505 [ 1 : 2.50 ]

14Jahangir Siddiqui Inv.

Bank Ltd.JS Bank Limited 30/12/2006 853.125 [ 1 : 3.24 ]

2005

Sr

No. Name

of

Comp

any

New name ofthe company /

merged with

Date of

Merger

Paidup

Capital Ratio

1First National

ModarabaFirst Paramount Modaraba 09/01/2005 51.800 [ 12 : 1 ]

2 Umer Fabrics LimitedNishat (Chunian) Ltd. &

Nishat Mills Ltd.20/01/2005 240.052

[ 1 : 0.051

& 0.949]

3Ibrahim Leasing

LimitedAllied Bank Limited 31/05/2005 251.350 [ 1 : 0.73]


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2004

Sr

No.Name ofCompany

New name ofthe


MergerPaidup

CapitalRatio

1Kohinoor GenertekLimited.

Khinoor Weaving MillsLimited. 13/01/2004 163.000 [ 3.569: 1 ]

2Twenty Fifth (25) ICP

Mutual Fund.

ABAMCO Stock Market

Fund07/02/2004 400.000 [ 1:0.909 ]

3Twenty Third (23) ICP

Mutual Fund.

ABAMCO Stock Market

Fund07/02/2004 200.000 [ 1:0.466 ]

4Twenty First (21) ICP

Mutual Fund.

ABAMCO Stock Market

Fund07/02/2004 100.000 [ 1:0.432 ]

5Twentyeth (20) ICPMutual Fund.

ABAMCO Capital Fund 13/03/2004 122.500 [ 1:1.261 ]

6

Nineteenth (19) ICP

Mutual Fund. ABAMCO Capital Fund 13/

03/2

004

122.5

00 [ 1:1.3

03

]

7Fifteenth (15) ICPMutual Fund.


8Twelefth (12) ICP

Mutual Fund.ABAMCO Capital Fund 13/03/2004 123.750 [ 1:1.097 ]

9Eleventh (11) ICP

Mutual Fund.ABAMCO Capital Fund 13/03/2004 123.750 [ 1:1.341 ]

10Eight (8) ICP Mutual

Fund.ABAMCO Capital Fund 13/03/2004 126.250 [ 1:1.303 ]

11Third (3) ICP Mutual

Fund.ABAMCO Capital Fund 13/03/2004 122.500 [ 1:1.243 ]

12First (1) ICP MutualFund.


13 KASB Leasing Limited. ABAMCO Capital Fund 10/03/2004 200.000 [ 1:1.05 ]

14Fidelity Investment BankLimited

Trust Commercial BankLimited

30/04/2004 345.000 [ 1:1.198 ]

15Trust Investment BankLimited

Trust Commercial BankLimited

30/04/2004 469.418 [ 1:1.084 ]

16First General LeasingModaraba

First Dawood InvestmentBank Limited

12/05/2004 56.250 [ 1:0.062 ]

17 Industrial CapitalModaraba

First Dawood InvestmentBank Limited

12/05/2004 94.875 [ 1:0.013 ]

18TwentyFourth (24) ICP

Mutual FundPICIC Investment Fund 07/06/2004 800.000 [1:0.552]

19Second (2) ICP Mutual

FundPICIC Investment Fund 07/06/2004 143.750 [1:0.927]

20 Fifth (5) ICP Mutual PICIC Investment Fund 07/06/2004 143.750 [1:1.020]


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Fund

21Sixth (6) ICP Mutual


22Seventh (7) ICP Mutual


23Nineth (9) ICP MutualFund

PICIC Investment Fund 07/06/2004 143.750 [1:1.494]

24Tenth (10) ICP MutualFund


25Thirteenth (13) ICPMutual Fund


26Fourteenth (14) ICP


27Sixteenth (16) ICP


28 Seventeenth (17) ICPMutual Fund


29Eighteenth (18) ICPMutual Fund


30Twenty Second (22) ICPMutual Fund


31First LeasingCorporation Limited

First Standard InvestmentBank Limited

18/06/2004 272.783 [3.268 : 1]

32Paramount LeasingLimited


18/06/2004 250.000 [0.513 : 1]

33 Pacific LeasingCompany Limited


18/06/2004 200.000 [0.555 : 1]

34 Dilon LimitedDawood Lawrencepur

Limited29/06/2004 23.595 [1 : 0.85]

35Burewala Textile Mills

Limited

Dawood Lawrencepur

Limited29/06/2004 73.074 [1 : 1.17]

36Lawrencepur Woollen &Tex. Mills Ltd.

Dawood LawrencepurLimited

29/06/2004 50.222 [1 : 0.92]

37Ghandhara Nissan DieselLimited

Ghandhara Nissan Limited 09/10/2004 155.358 [1 : 2.50]

38Trust Commercial BankLimited

Crescent Commercial BankLimited 18/10/2004 1,000.000 [1 : 0.74]

39 First Hajveri ModarabaFirst Fidelity Leasing

Modaraba01/12/2004 205.320 [3.552 : 1]


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2003

SrNo.

Name ofCompanyNew name ofthe company /

merged withDate ofMerger

PaidupCapital

Ratio

1Orient Insurance

Company Ltd.

Business & Industrial

Insurance Co. Ltd.22/01/2003 40.000 [ 1.08 : 1 ]

2Nafees Cotton MillsLimited

Legler - Nafees Denim MillsLimited

29/01/2003 135.703 [ 1 : 4.05 ]

3KASB & CompanyLimited

KASB Bank Limited 04/06/2003 383.631 [ 1 : 2.32 ]

4Crescent InvestmentBank Limited

Mashreq Bank PakistanLimited

09/07/2003 500.257 [ 1 : 2.36 ]

5 First CresecentModaraba

First Standard InvestmentBank Ltd.

31/07/2003 226.187 [ 1 : 3 ]

6First Professional

ModarabaAl-Zamin Leasing Modaraba 01/08/2003 77.674 [ 1 : 1 ]

7PEL Appliances

LimitedPak Electron Limited 30/08/2003 58.500 [ 1 : 0.14 ]

8 NDLC (Rs.5 per share)IFIC Bank Limited (Rs. 10per share)

17/10/2003 377.400[ 1 : 1.1764

]

Documents

Mergers & Acqusitions