Module II

M&A Process:- Identification of target, Negotiation, closing the deal Due diligence M&A Integration Organisational and HR integration Managerial challenges of M&A

The process of mergers and acquisitions in India is court driven, long drawn and hence problematic. The process may be initiated through common agreements between the two parties, but that is not sufficient to provide a legal cover to it. The sanction of the High Court is required for bringing it into effect. The Companies Act, 1956 consolidates provisions relating to mergers and acquisitions and other related issues of compromises, arrangements and reconstructions, however other provisions of the Companies Act get attracted at different times and in each case of merger and acquisition and the procedure remains far from simple. The Central Government has a role to play in this process and it acts through an Official Liquidator (OL) or the Regional Director of the Ministry of Company Affairs. The entire process has to be to the satisfaction of the Court. This sometimes results in delays.

Top Management commitment: Top management defines the organization's goal and outlines the policy framework to achieve these objectives. Top managements business expansion goal could be accomplished through business combinations. When top management is not committed, the merger process is expected to be failed.

This is also known as pre-merger stage. It includes screening and search of target firm and planning which require the detailed evaluation of the target. This stage includes all kinds of assessments to be done by the acquirer on the target firm and target firm should also participate in this stage to realise its optimum value.

Information needed at this stage can be collected from published and private sources and should reveal organisational history, promoters, capital structure, organisational goals, product, market, competitors, organisational set-up and management pattern, assets profile, manpower etc. Perfect Team to handle the merger process.

Companies should go for a strategic merger which will enable them to set strategic goals like increase in market share etc. Strategic plan avoids poorly structured deals Planning of few crucial factors like due diligence, integration and valuation essential for successful M&A Hence strategy + selection + Implementation can lead to a successful merger.

Top management to negotiate with several identified short-listed companies suitable to be merger partner for settling terms of merger and pick up one of them which offers most favourable terms. Different aspects like preliminary consultations with the merger partner and seeking its willingness to co-operate in investigations, quantification of action plan, date of merger, profitability and valuation, taxation and legal aspects and development plan of the company after merger are to be negotiated, which cannot be ignored as they are essential for a successful merger.

Once the merger partner has been identified and term of merger are settled the procedure summarized below can be followed.

1.Memorandum Of Association (M/A):-The Memorandum of Association must provide the power to amalgamate in its objects clause. If M/A is silent, amendment in M/A must take place. 2. Board Meeting:-A Board Meeting shall be convened to consider and pass the following requisite resolutions: - approve the draft scheme of amalgamation; - to authorize filing of application to the court for directions to convene a general meeting; - to file a petition for confirmation of scheme by the High Court.

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 Articles of association may present a petition on behalf of the company without first obtaining the approval of the company in general meeting.

3. Application to the Court:- An application shall be made to the court for directions to convene a general meeting by way of Judge's summons (Form No. 33) supported by an affidavit(Form No. 34). The proposed scheme of amalgamation must be attached to such affidavit. The summons should be accompanied by: -A certified copy of the M&A of both companies -A certified true copy of the latest audited B/S and P&L A/c of transferee company

The application to convene meeting under sec.391(1) is required to be made to the respective jurisdictional HC by the company concerned depending on the location of its registered office. Similarly an application for the scheme of arrangement will have to be made to the concerned HC where the companys registered office is situated.

4. Copy to Regional Director:A copy of application made to concerned H.C. shall also be sent to the R.D. of the region. Although, such notice is supposed to be sent by the H.C., usually the company sends it without waiting for the H.C. to send it.

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: (a) Time and place of the meeting, (b) Chairman of the meeting, (c) Fixing the quorum, (d) Procedure to be followed in the meeting for voting by the proxy, (e) Advertisement of notice of the meeting, (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: - Terms of amalgamation and its effects - Any material interests of the director, MDs or Manager, in any capacity - Effect of the arrangement on those interests. (b) A copy of the proposed scheme of amalgamation (c) A form of proxy,( Proxy in - Form No. 37) (d) Attendance slip, (e) Notice of the resolution for authorizing issue of shares to persons other than existing shareholders.

7.Advertisement of Notice Of Meeting(Advertisement in - Form No. 38):The notice of the meeting shall be advertised in an English and Hindi Newspapers as the court may direct by giving not less than 21 clear days notice before the date fixed for the meeting. However in some instances, the 21 days period can be condoned if reasons are found justifiable.

8. Notice To Stock Exchange:In case of the listed company, 3 copies of the notice of the general meeting along with enclosures shall be sent to the Stock Exchange where the company is listed.

9. Filing Of Affidavit For The Compliance:An affidavit not less 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: (a) Approving the scheme of amalgamation by th majority e.g. if a meeting is attended by say 100 members holding 100 shares, the scheme shall be deemed to have been approved only when it is supported by at least 51 members holding together 750 shares amounts themselves; (b) Special Resolution authorizing allotment of shares to persons other than existing shareholders or an ordinary resolution be passed subject to getting Central Government's approval for the allotment as per the provisions of Section 81(1A) of the Companies Act, 1956,

(d) An ordinary/special resolution shall be passed to increase the Authorized share capital, if the proposed issue of shares exceeds the present authorized capital. The decision of the meeting shall be ascertained only by taking a poll on resolutions.
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: (i)Form No. 23 of Companies General Rules & Forms + copy of Special Resolution. (ii)Resolution approving the scheme of amalgamation, (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. However in a recent judgment of Jaipur Polypin Ltd. v. Rajasthan Spinning & Weaving Mills, it was held that when the two companies are at different places, then no need to file an application at two different places.

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 th majority of the members present. (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 requirement of law is permission or approval of court to the scheme

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: -A certified true copy of Court's Order -Form No. 21 of Companies General Rules & Forms

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.