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MERGER & ACQUISITION IN INDIA
NO OBJECTION CERTIFICATE
We have no objection for him/her to carry out a project work titled “Merger &
Acquisitions” in our organization and for submitting the same to the Director,
SCDL as a part of fulfilment of the PGDBA Program.
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MERGER & ACQUISITION IN INDIA
This is to declare that I have carried out this project work myself in part fulfilment
of the PGDBA Program of SCDL.
The work is original, has not been copied from anywhere else and has not been
submitted to any other University/Institute for an award of any degree/diploma.
Date: Signature:
Place: Name
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MERGER & ACQUISITION IN INDIA
Certified that the work incorporated in this Project Report Merger & Acquisions in
India submitted by Anita Raina is her original work and completed under my
supervision.
Material obtained from other sources has been duly acknowledged in the Project
Report
Place:
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INDEX
Sl. No Particulars Page no.
1. Introduction to Merger & Acquisition 05
2. Merger 07
3. Acquisition 09
Types of Acquisition 10
4. Takeover 11
Types of Takeover 12-13
5. History Of Merger & Acquisition 14-17
6. Types of Merger 18-29
7. Distinction between Merger & Acquisition 30
8. Advantage of Merger & Acquisition 31
9. Motivations For Mergers And Acquisitions 32-35
10. Benefits of Merger 36
11. Steps of Merger & Acquisition 37-38
12. Reasons for Merger 39-43
13. Valuations of Merger 44-47
14. Financial aspects of Merger 48-49
15. Tax aspects of Merger & Acquisitions 50-52
11. Procedure for Takeover & Acquisition 53-56
12 Purpose of Merger& Acquisition 57-59
13. Merger & Acquisition in India 60
14. 61-63
15. 64-67
16. 68-71
17. Merger And Acquisition Legal Procedures of Companies 72-79
18. Conclusion 80
19. Bibliography 81
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We have been learning about the companies coming together to from another
company and companies taking over the existing companies to expand their
business.
With recession taking toll of many Indian businesses and the feeling of insecurity
surging over our businessmen, it is not surprising when we hear about the immense
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Thus important issues both for business decision and public policy formulation
have been raised. No firm is regarded safe from a takeover possibility. On the
more positive side Mergers & Acquisition’s may be critical for the healthy
expansion and growth of the firm. Successful entry into new product and
geographical markets may require Mergers & Acquisition’s at some stage in the
firm's development.
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Merger
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A merger can resemble a takeover but result in a new company name (often
combining the names of the original companies) and in new branding; in some
cases, terming the combination a "merger" rather than an acquisition is done purely
for political or marketing reasons.
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If we trace back to history, it is observed that very few mergers have actually
added to the share value of the acquiring company and corporate mergers may
promote monopolistic practices by reducing costs, taxes etc.
Managers are concerned with improving operations of the company, managing the
affairs of the company effectively for all round gains and growth of the company
which will provide them better deals in raising their status, perks and fringe
benefits.
Acquisition
Acquisitions or takeovers occur between the bidding and the target company.
There may be either hostile or friendly takeovers. Acquisition in general sense is
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Methods of Acquisition:
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a. Reverse takeover occurs when the target firm is larger than the bidding firm. In
the course of acquisitions the bidder may purchase the share or the assets of the
target company.
b. In the former case, the companies cooperate in negotiations; in the latter case,
the takeover target is unwilling to be bought or the target's board has no prior
knowledge of the offer.
a. A reverse merger occurs when a private company that has strong prospects and
is eager to raise financing buys a publicly listed shell company, usually one with
no business and limited assets.
Takeover:
In business, a takeover is the purchase of one company (the target) by another (the
acquirer, or bidder). In the UK, the term refers to the acquisition of a public
company whose shares are listed on a stock exchange, in contrast to the acquisition
of a private company.
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A ‘takeover’ is acquisition and both the terms are used interchangeably. Takeover
differs from merger in approach to business combinations i.e. the process of
takeover, transaction involved in takeover, determination of share exchange or
cash price and the fulfillment of goals of combination all are different in takeovers
than in mergers. For example, process of takeover is unilateral and the offeror
company decides about the maximum price. Time taken in completion of
transaction is less in takeover than in mergers, top management of the offeree
company being more co-operative
1. Friendly takeovers
2. Hostile takeovers
3. Reverse takeovers
1. Friendly Takeovers
Before a bidder makes an offer for another company, it usually first informs that
company's board of directors. If the board feels that accepting the offer serves
shareholders better than rejecting it, it recommends the offer be accepted by the
shareholders.
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In a private company, because the shareholders and the board are usually the same
people or closely connected with one another, private acquisitions are usually
friendly. If the shareholders agree to sell the company, then the board is usually of
the same mind or sufficiently under the orders of the shareholders to cooperate
with the bidder. This point is not relevant to the UK concept of takeovers, which
always involve the acquisition of a public company. Hostile takeovers
2. Hostile Takeovers
A hostile takeover can be conducted in several ways. A tender offer can be made
where the acquiring company makes a public offer at a fixed price above the
current market price. Tender offers in the USA are regulated with the Williams
Act.
Another method involves quietly purchasing enough stock on the open market,
known as a creeping tender offer, to effect a change in management. In all of these
ways, management resists the acquisition but it is carried out anyway.
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3. Reverse takeovers
Tracing back to history, merger and acquisitions have evolved in five stages and
each of these are discussed here. As seen from past experience mergers and
acquisitions are triggered by economic factors.
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The first wave mergers commenced from 1897 to 1904. During this phase merger
occurred between companies, which enjoyed monopoly over their lines of
production like railroads, electricity etc.
The first wave mergers that occurred during the aforesaid time period were mostly
horizontal mergers that took place between heavy manufacturing industries.
Majority of the mergers that were conceived during the 1st phase ended in failure
since they could not achieve the desired efficiency. The failure was fuelled by the
slowdown of the economy in 1903 followed by the stock market crash of 1904.
The legal framework was not supportive either. The Supreme Court passed the
mandate that the anticompetitive mergers could be halted using the Sherman Act.
The second wave mergers that took place from 1916 to 1929 focused on the
mergers between oligopolies, rather than monopolies as in the previous phase. The
economic boom that followed the post World War I gave rise to these mergers.
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The government policy encouraged firms to work in unison. This policy was
implemented in the 1920s. The 2nd wave mergers that took place were mainly
horizontal or conglomerate in nature. Te industries that went for merger during this
phase were producers of primary metals, food products, petroleum products,
transportation equipments and chemicals. The investments banks played a pivotal
role in facilitating the mergers and acquisitions.
The 2nd wave mergers ended with the stock market crash in 1929 and the great
depression. The tax relief that was provided inspired mergers in the 1940s.
The mergers that took place during this period (1965-69) were mainly
conglomerate mergers. Mergers were inspired by high stock prices, interest rates
and strict enforcement of antitrust laws.
The bidder firms in the 3rd wave merger were smaller than the Target Firm.
Mergers were financed from equities; the investment banks no longer played an
important role.
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The 3rd wave merger ended with the plan of the Attorney General to split
conglomerates in 1968. It was also due to the poor performance of the
conglomerates. Some mergers in the 1970s have set precedence.
The most prominent ones were the INCO-ESB merger; United Technologies and
OTIS Elevator Merger are the merger between Colt Industries and Garlock
Industries.
The 4th wave merger that started from 1981 and ended by 1989 was characterized
by acquisition targets that wren much larger in size as compared to the 3rd wave
merger. Mergers took place between the oil and gas industries, pharmaceutical
industries, banking and airline industries. Foreign takeovers became common with
most of them being hostile takeovers. The 4th Wave mergers ended with anti
takeover laws, Financial Institutions Reform and the Gulf War.
The 5th Wave Merger (1992-2000) was inspired by globalization, stock market
boom and deregulation. The 5th Wave Merger took place mainly in the banking
and telecommunications industries.
They were mostly equity financed rather than debt financed. The mergers were
driven long term rather than short term profit motives. The 5th Wave Merger
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ended with the burst in the stock market bubble. Hence we may conclude that the
evolution of mergers and acquisitions has been long drawn. Many economic
factors have contributed its development.
Types of Merger
Merger or acquisition depends upon the purpose of the offeror company it wants to
achieve. Based on the offeror objectives profile, combinations could be vertical,
horizontal, circular and conglomeratic as precisely described below with reference
to the purpose in view of the offeror company. Merger types can be broadly
classified into the following five subheads as described below.
1. Horizontal Merger: - refers to the merger of two companies who are direct
competitors of one another. They serve the same market and sell the same product.
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2.Horizontal Mergers
3.Vertical Mergers
5. Conglomerate Mergers
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One of the most important certified merger and acquisition advisory programs is
the Certified Valuation Manager Program offered by the American Academy of
Financial Management (AAFM). The American Academy of Financial
Management is also hosting a number of Certified Valuation Manager Training
Conferences throughout the year.
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With the help of certified merger and acquisition advisory services, the clients
can enjoy instant accessibility to:
Knowledgeable principals
Acquisition Lookup
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2. Horizontal Mergers
Two companies that are in direct competition and share similar product lines
and markets. In the context of marketing, horizontal merger is more
prevalent in comparison to horizontal merger in the context of production or
manufacturing.
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Never the less, the horizontal mergers do not have the capacity to ensure the
market about the product and steady or uninterrupted raw material supply.
Horizontal Integration
Sometimes, horizontal merger is also called as horizontal integration. It is totally
opposite in nature to vertical merger or vertical integration.
Horizontal Monopoly
A monopoly formed by horizontal merger is known as a horizontal monopoly.
Normally, a monopoly is formed by both vertical and horizontal mergers.
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Horizontal Expansion
An expression which is intimately connected to horizontal merger is horizontal
expansion. This refers to the expansion or growth of a company in a sector that is
presently functioning. The aim behind a horizontal expansion is to grow its market
share for a specific commodity or service.
The formation of Brook Bond Lipton India Ltd. through the merger of
Lipton India and Brook Bond
The merger of BSES (Bombay Suburban Electric Supply) Ltd. with Orissa
Power Supply Company
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3. Vertical merger
Vertical mergers refer to a situation where a product manufacturer merges with the
supplier of inputs or raw materials. In can also be a merger between a product
manufacturer and the product's distributor.
A company would like to takeover another company or seek its merger with that
company to expand espousing backward integration to assimilate the resources of
supply and forward integration towards market outlets.
The following main benefits accrue from the vertical combination to the acquirer
company i.e.
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Vertical mergers may violate the competitive spirit of markets. It can be used to
block competitors from accessing the raw material source or the distribution
channel. Hence, it is also known as "vertical foreclosure". It may create a sort of
bottleneck problem. As per research, vertical integration can affect the pricing
incentive of a downstream producer. It may also affect a competitor’s incentive for
selecting input suppliers.
There are multiple reasons, which promote the vertical integration by firms.
Some of them are discussed below.
Firms may also enter vertical mergers to avail the plus points of economies
of integration.
4. Market-extension merger
As per definition, market extension merger takes place between two companies
that deal in the same products but in separate markets. The main purpose of the
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market extension merger is to make sure that the merging companies can get
access to a bigger market and that ensures a bigger client base.
With the help of this acquisition RBC has got a chance to deal in the financial
market of Atlanta, which is among the leading upcoming financial markets in the
USA. This move would allow RBC to diversify its base of operations.
5. Product-extension merger
Two companies selling different but related products in the same market.
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companies to group together their products and get access to a bigger set of
consumers. This ensures that they earn higher profits.
Mobilink Telecom Inc. deals in the manufacturing of product designs meant for
handsets that are equipped with the Global System for Mobile Communications
technology.
It is also in the process of being certified to produce wireless networking chips that
have high speed and General Packet Radio Service technology. It is expected that
the products of Mobilink Telecom Inc. would be complementing the wireless
products of Broadcom.
6. Conglomeration
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The pure conglomerate merger is one where the merging companies are doing
businesses that are totally unrelated to each other.
The mixed conglomerate mergers are ones where the companies that are
merging with each other are doing so with the main purpose of gaining access
to a wider market and client base or for expanding the range of products and
services that are being provided by them There are also some other subdivisions
of conglomerate mergers like the financial conglomerates, the concentric
companies, and the managerial conglomerates.
There are several reasons as to why a company may go for a conglomerate merger.
Among the more common reasons are adding to the share of the market that is
owned by the company and indulging in cross selling. The companies also look to
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There are several advantages of the conglomerate mergers. One of the major
benefits is that conglomerate mergers assist the companies to diversify. As a result
of conglomerate mergers the merging companies can also bring down the levels of
their exposure to risks.
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things:-
When one company takes over another and clearly established itself as the
new owner, the purchase is called an acquisition.
When merger happens when two firms, often of about the same size, agree
to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger
of equals".
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Both companies' stocks are surrendered and new company stock is issued in
its place. A purchase deal will also be called a merger when both CEOs
agree that joining together is in the best interest of both of their companies.
But when the deal is unfriendly - that is, when the target company does not
want to be purchased - it is always regarded as an acquisition. This is
challengeable.
Shareholders in the selling company gain from the merger and takeovers as the
premium offered to induce acceptance of the merger or takeover offers much more
price than the book value of shares. Shareholders in the buying company gain in
the long run with the growth of the company not only due to synergy but also due
to “boots trapping earnings”.
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Mergers and acquisitions are caused with the support of shareholders, manager’s
ad promoters of the combing companies. The factors, which motivate the
shareholders and managers to lend support to these combinations and the resultant
consequences they have to bear, are briefly noted below based on the research
work by various scholars globally.
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The sale of shares from one company’s shareholders to another and holding
investment in shares should give rise to greater values i.e. the opportunity gains in
alternative investments. Shareholders may gain from merger in different ways viz.
from the gains and achievements of the company i.e. through
Managers are concerned with improving operations of the company, managing the
affairs of the company effectively for all round gains and growth of the company
which will provide them better deals in raising their status, perks and fringe
benefits.
Mergers where all these things are the guaranteed outcome get support from the
managers. At the same time, where managers have fear of displacement at the
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(a) Consumers
The economic gains realized from mergers are passed on to consumers in the form
of lower prices and better quality of the product which directly raise their standard
of living and quality of life.
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The balance of benefits in favour of consumers will depend upon the fact whether
or not the mergers increase or decrease competitive economic and productive
activity which directly affects the degree of welfare of the consumers through
changes in price level, quality of products, after sales service, etc.
2. Any restrictions placed on such mergers will decrease the growth and
investment activity with corresponding decrease in employment. Both
workers and communities will suffer on lessening job opportunities,
preventing the distribution of benefits resulting from diversification of
production activity.
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Benefits of Mergers
1. Limit competition
industry
4. Achieve diversification
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investment
10. Reap speculative gains attendant upon new security issue or change in P/E
ratio.
There are three important steps involved in the analysis of merger and acquisitions
1. Planning:
The most important step in merger and acquisition is planning. The planning
of acquisition will require the analysis of industry specific and the firm
specific information. The acquiring firm will need industry data on market
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regulation etc. About the target firm the information needed will include the
Search focuses on how and where to look for suitable candidates for
various ways rather than through merger alone. The alternatives to merger
firm must satisfy itself that it is the best available option in terms of its own
3. Financial Evaluation :
cash flows, area of risk, the maximum price payable to the target company
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and the best way to finance the merger. The acquiring firm must pay a fair
market situation with capital market efficiency, the current market value is
the current market value of its share of the target firm. The target firm will
not accept any offer below the current market value of its share. The target
firm in fact, expect that merger benefits will accrue to the acquiring firm.
A merger is said to be at a premium when the offer price is higher than the
target firm’s pre merger market price. The acquiring firm may pay the
premium if it thinks that it can increase the target firm’s after merger by
improving its operations and due to synergy. It may have to pay premium as
shares so that the acquiring firm is enabled to obtain the control of the target
firm.
1. Accelerated Growth:
excitement to the executives as well as opportunities for their job enrichment and
things being the same, growth leads to higher profits and increase in the
A firm may expand and diversify its markets internally or externally. If company
cannot grow internally due to lack of physical and managerial resources, it can
2. Enhanced Profitability :
The combination of two or more firm may result in more than the average
profitability due to cost reduction and efficient utilization of resources. This may
a) Economies of Scale :
When two or more firm combine, certain economies are realized due to the
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b) Operating Economies :
result into cost reduction due to operating economies. A combined firm may
control system.
c) Strategic Benefits :
may offer strategic advantages such as less risk and less cost.
d) Complementary Resources :
If two firms have complementary resources it may make sense for them to
merge. For example, a small firm with an innovative product may need the
engineering capability and marketing reach of a big firm. With the merger of
the two firms it may be possible to successfully manufacture and market the
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e) Tax Shields :
When a firm with accumulated losses and unabsorbed tax shelters merges
with a profit making firm, tax shields are utilized better. The firm with
accumulated losses and unabsorbed tax shelters may not be able to derive tax
advantages for a long time. However, when it merges with a profit making firm,
its accumulated losses and unabsorbed tax shelters can be set off against the
profits of the profit making firm and tax benefits can be quickly realized.
A firm in a mature industry may generate a lot of cash but may not have
make further investments, even though they may not be profitable. In such a
4 Managerial Effectiveness:
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allied benefit of a merger may be in the form of greater congruence between the
management.
1. Diversification of Risk:
the cost of borrowing for the merged firm. The reason for this is that the creditors
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of the merged firm enjoy better protection than the creditor of the merging firms
independently.
Valuations of Merger
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computed the exchange ratio is worked out. It is the value at which a buyer and
seller would make a deal. There are certain basic factors, which determine the
shares
Evaluate the impact of the merger on EPS (Earning Per Share) and PE
(Price-earning ratio).
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In a merger or acquisition the acquiring firm is buying the business of the target
firm rather than a specific asset. Thus merger is a special type of capital
budgeting decision. This should include the effect of operating efficiencies and
decision. The acquiring firm incurs a cost (in buying the business of the target
firm) in the expectation of a stream of benefits (in the form of cash flows) in the
future. The merger will be advantageous to the acquiring firm if the present
Mergers and acquisitions involve complex set of managerial problems than the
tool in analyzing mergers and acquisitions. Earnings are basis for estimating
(EPS) and the price earning (P/E) ratio. The EPS and P/E ratio is the market
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price per share. In the efficient market, the market price of a share should be
equal to the value arrived by the discounted cash flow technique. Thus, in
addition to the market price and the discount value of share the merger and
acquisitions decisions are also evaluated in terms of EPS, P/E ratio, book value
etc.
3. Exchange Ratio:
The current market value of the acquiring and the acquired firms may be
The exchange ratio in terms of the market value of shares will keep the position
incentive for the shareholders of the acquired firm, and they would require a
In the absence of net economic gain, the shareholders of the acquiring firm
would become worse off unless the price earning ratio of the acquiring firm
remain the same before the merger. The shareholders of the acquiring firm to be
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better off after the merger without any net economic gain either the price
earnings ratio will have to increase sufficiently higher or the share exchange
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There are many ways in which a merger can result into financial synergy. A
1. Financial Constraint:
shortage of fund. The firm can grow externally by acquiring another firm by the
2. Surplus Cash:
A firm may be faced by a cash rich firm. It may not have enough internal
opportunities to invest its surplus cash. It may either distribute its surplus cash
to its shareholders or use it to acquire some other firm. The shareholders may
not really benefit much if surplus cash is returned to them since they would
have to pay tax at ordinary income tax rate. Their wealth may increase through
an increase in the market value of their shares if surplus cash is used to acquire
another firm. If they sell their shares they would pay tax at a lower, capital gain
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tax rate. The company would also be enabled to keep surplus funds and grow
through acquisition.
3. Debt capacity:
flows, can bring stability of cash flows of the combined firm. The stability of
cash flows reduces the risk of insolvency and enhances the capacity of the new
4. Financing cost:
Does the enhanced debt capacity of the merged firm reduce its cost of
and increased protection to lenders, the merged firm should be able to borrow at
a lower rate of interest. This advantage may, however be taken off partially or
protection to lenders.
Another aspect of the financing costs is issue costs. A merged firm is able to
realize economies of scale in flotation and transaction costs related to an issue of
capital. Issue costs are saved when the merged firm makes a larger security issue.
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The important tax provisions relating to merger and acquisition can be broadly
discussed as follows:
1. Depreciation:
For tax purposes the depreciation chargeable by the amalgamated firm has to be
based on the written down value of the asset before amalgamation. For
carried forward by the amalgamated firm except as provided in section 72A (1)
of the Income Tax Act. However enables the amalgamated firm to carry
firm in certain special cases of amalgamation. The benefit is available when the
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authority that adequate steps have been taken for the rehabilitation or
In view of the benefit that accrues under section 72A(1) the concerned firm
should check with the specified authority fairly early in the amalgamation
Since the benefit under section 72A(1) is often not easily forthcoming merging
The amalgamated firm can amortize the expenditure on scientific research the
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Allowance:
or transfer of asset and creation and utilization of reserves are satisfied by the
amalgamated firm.
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The acquirer shall appoint a merchant banker registered as category – I with SEBI
to advise him on the acquisition and to make a public announcement of offer on his
behalf.
Public announcement shall be made at least in one national English daily one
Hindi daily and one regional language daily newspaper of that place where the
shares of that company are listed and traded.
3. Timings of Announcement:
4. Contents of Announcement:
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(1) Paid up share capital of the target company, the number of fully paid up and
partially paid up shares.
(2) Total number and percentage of shares proposed to be acquired from public
subject to minimum as specified in the sub-regulation (1) of Regulation 21
that is:
(a) The public offer of minimum 20% of voting capital of the company to
the shareholders;
(b) The public offer by a raider shall not be less than 10% but more than
51% of shares of voting rights. Additional shares can be had @ 2% of
voting rights in any year.
(3) The minimum offer price for each fully paid up or partly paid up share.
(5) The identity of the acquirer and in case the acquirer is a company, the
identity of the promoters and, or the persons having control over such company
and the group, if any, to which the company belong;
(6) The existing holding, if any, of the acquirer in the shares of the target
company, including holding of persons acting in concert with him;
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(7) Salient features of the agreement, if any, such as the date, the name of the
seller, the price at which the shares are being acquired, the manner of payment
of the consideration and the number and percentage of shares in respect. Which
the acquirer has entered into the agreement to acquirer the shares or the
consideration, monetary or otherwise, for the acquisition of control over the
target company, as the case may be;
(8) The highest and the average paid by the acquirer or persons acting in concert
with him for acquisition, if any, of shares of the target company made by him
during the twelve month period prior to the date of the public announcement.
(9) Objects and purpose of the acquisition of the shares and the future plans of
the acquirer for the target company, including disclosers whether the acquirer
proposes to dispose of or otherwise encumber any assets of the target company:
Provided that where the future plans are set out, the public announcement shall
also set out how the acquirers propose to implement such future plans;
(11) The date by which individual letters of offer would be posted to each of the
shareholders.
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(12) The date of opening and closure of the offer and the manner in which and
the date by which the acceptance or rejection of the offer would be
communicated to the share holders.
(13) The date by which the payment of consideration would be made for the
shares in respect of which the offer has been accepted.
(14) Disclosure to the effect that firm arrangement for financial resources
required to implement the offer is already in place, including the details
regarding the sources of the funds whether domestic i.e. from banks, financial
institutions, or otherwise or foreign i.e. from Non-resident Indians or otherwise.
(15) Provision for acceptance of the offer by person who own the shares but are
not the registered holders of such shares.
(16) Statutory approvals required to obtained for the purpose of acquiring the
shares under the Companies Act, 1956, the Monopolies and Restrictive Trade
Practices Act, 1973, and/or any other applicable laws.
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1. to improve its own image and attract superior managerial talents to manage
its affairs;
2. to offer better satisfaction to consumers or users of the product.
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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. It has to aim at suitable combination
where it could have opportunities to supplement its funds by issuance of
securities, secure additional financial facilities eliminate competition and
strengthen its market position.
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In India, the concept of mergers and acquisitions was initiated by the government
bodies. Some well known financial organizations also took the necessary
initiatives to restructure the corporate sector of India by adopting the mergers and
acquisitions policies.
The Indian economic reform since 1991 has opened up a whole lot of challenges
both in the domestic and international spheres. The increased competition in the
global market has prompted the Indian companies to go for mergers and
acquisitions as an important strategic choice.
The trends of mergers and acquisitions in India have changed over the years. The
immediate effects of the mergers and acquisitions have also been diverse across
the various sectors of the Indian economy.
India has emerged as one of the top countries with respect to merger and
acquisition deals. In 2007, the first two months alone accounted for merger and
acquisition deals worth $40 billion in India.
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Among the different Indian sectors that have resorted to mergers and acquisitions
in recent times, telecom, finance, FMCG, construction materials, automobile
industry and steel industry are worth mentioning.
With the increasing number of Indian companies opting for mergers and
acquisitions, India is now one of the leading nations in the world in terms of
mergers and acquisitions.
The merger and acquisition business deals in India amounted to $40 billion during
the initial 2 months in the year 2007. The total estimated value of mergers and
acquisitions in India for 2007 was greater than $100 billion. It is twice the amount
of mergers and acquisitions in 2006.
Till recent past, the incidence of Indian entrepreneurs acquiring foreign enterprises
was not so common. The situation has undergone a sea change in the last couple of
years. Acquisition of foreign companies by the Indian businesses has been the
latest trend in the Indian corporate sector.
There are different factors that played their parts in facilitating the mergers and
acquisitions in India. Favorable government policies, buoyancy in economy,
additional liquidity in the corporate sector, and dynamic attitudes of the Indian
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entrepreneurs are the key factors behind the changing trends of mergers and
acquisitions in India.
The Indian IT and ITES sectors have already proved their potential in the global
market. The other Indian sectors are also following the same trend. The increased
participation of the Indian companies in the global corporate sector has further
facilitated the merger and acquisition activities in India.
Tata Steel acquired Corus Group plc. The acquisition deal amounted to
$12,000 million.
Dr. Reddy's Labs acquired Betapharm through a deal worth of $597 million.
Ranbaxy Labs acquired Terapia SA. The deal amounted to $324 million.
HPCL acquired Kenya Petroleum Refinery Ltd. The deal amounted to $500
million.
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When it comes to mergers and acquisitions deals in India, the total number
was 287 from the month of January to May in 2007. It has involved
monetary transaction of US $47.37 billion. Out of these 287 merger and
acquisition deals, there have been 102 cross country deals with a total
valuation of US $28.19 billion.
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2. Board Meeting:-A Board Meeting shall be convened to consider and pass the
following requisite resolutions:
Through an application under s.391/ 394 of Companies Act, 1956 can be made by
the member or creditor of a company, the court may not be able to sanction the
scheme which is not approved by the company by a Board or members resolution.
Directors who are given the necessary powers by the AOA may present a petition
on behalf of the company without first obtaining the approval of the company in
general meeting.
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-A certified true copy of the latest audited B/S and P&L A/c of Transferee
Company
(i) U/s.391 & 394, members of the company have right to apply to court
5. Order Of High Court (Orders in - Form No. 35):-On hearing of the
summons, the H.C. shall pass the necessary orders which shall include:
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(f) Time limit for the chairman to submit the report to the court regarding the
result of the meeting.
Where the court observes that any of the following circumstances exist in the case
of the merger it may not order a meeting when shareholders are few in number; or
where the membership is restricted to a single family, HUF or close relatives; or
where shareholding pattern of transferor and transferee companies is identical.
6. Notice Of The Meeting(Notice in - Form No. 36):-The notice of the meeting
shall be sent to the creditors and/or all the shareholders individually (including
preference shareholders) by the chairman so appointed by registered post
enclosing: (a) A statement setting forth the following:
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(e) Notice of the resolution for authorizing issue of shares to persons other than
existing shareholders
Computation: The notice that is required to be given u/s.393 of the Act for the
meeting of the members/creditors shall be by 21 clear days notice.
9. Filing Of Affidavit For The Compliance: - An affidavit not les than 7 days
before the meeting shall be filed by the Chairman of the meeting with the Court
showing that the directions regarding the issue of notices and advertisement have
been duly complied with.
10. General Meeting:-The General Meeting shall be held to pass the following
resolutions:
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(c) The resolution to empower directors to dispose of the shares not taken up by
the dissenting shareholders at their discretion.,
In case of Transfer company need not to pass a special resolution for offering
shares to the persons other than the existing shareholders.
11. Reporting of Result of the Meeting(Report in - Form No. 39):-The Chairman
of the meeting shall report the result of the meeting to the court within the time
fixed by the judge or within 7 days, as the case may be. A copy of proceedings of
the meeting shall also be sent to the concerned Stock Exchange.
12. Formalities With ROC:- The following documents shall be filed with ROC
along-with the requisite filing fees:
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(iii) Special resolution passed for the issue of shares to persons other than
existing shareholders.
13. Petition (Petition in - Form No. 40):-For approval of the scheme of
amalgamation, a petition shall be made to the H.C. within 7 days of the filing of
report by the chairman.
If the Regd. Offices of the companies are in same state - then both the companies
may move jointly to the High Court.
If the Regd. Offices of the companies are in different states - then each company
shall move the petition in respective High Court for directions.
14. Sanction of The Scheme: - The Court shall sanction the scheme on being
satisfied that:
(i) The whole scheme is annexed to the notice for convening meeting. (This
provision is mandatory in nature)
(ii) The scheme should have been approved by the company by means of ¾th
majority of the members present.
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(iii)The scheme should be genuine and bona fide and should not be against the
interests of the creditors, the company and the public interest.
After satisfying itself, the court shall pass orders in the requisite form(Orders in -
Form No. 41).
The application made by the company is to seek court’s approval to the company
scheme of amalgamation and not merely ordering a meeting. The court may order
a meeting of members too.
The court must consider all aspects of the matter so as to arrive at a finding that the
scheme is fair, just and reasonable and does not contravene public policy or any
statutory provision.
While interpreting s.394 r/w s.391, we find that the Tribunal’s power of ordering
amalgamation/reconstruction is limited by two provisos of s.394: Firstly, Tribunal
has to await the receipt of report from the Registrar of Companies about the
manner in which affairs of the Company are conducted. Secondly, when the
transferor company is proposed to be dissolved without winding up, the Tribunal
shall await.
15. Stamp Duty :A scheme sanctioned by the court is an instrument liable to stamp
duty.
16. Filing with ROC: The following documents shall be filed with ROC within 30
days of order:
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17. Copy of Order to be annexed: A copy of court's order shall be annexed to every
copy of the Memorandum of Association issued after the certified copy of the
order has been filed with as aforesaid.
18. Allotment of shares: A Board Resolution shall be passed for the allotment of
shares to the shareholders in exchange of shares held in the transferor-company
and to fix the record date for this purpose.
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Conclusions
2. Most of the mergers that took place in India during the last decade seemed
to have followed the consequence of mergers in India corroborate the
conclusions of research work in U.S. with most of the M&A are taking place
in India to improve the size to withstand international competition which
they have been exposed to in the Post-liberalization regime.
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BIBLIOGRAPHY
Website: - www.google.com
www.wikipedia.com
www.mergersindia.com
www.mergerdigest.com
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