MERGER AND ACQUISITION

Introduction

Merger And Acquisition

2.1

Types of Merger and Acquisition

2.2

Motives in Merger and acquisition

Laws regulating Merger And Acquisition

3.1

The companies act, 1956

3.2

The competition act, 2002

3.3

Foreign exchange management act, 1999

3.4

SEBI takeover code 1994

3.5

The Indian income tax act (ITA), 1961

3.6

Mandatory permission by the courts

3.7

Stamp duty

3.8

Amendments In Companies Act 1956

Legal frame for Merger and Acquisition

Reasons why so many acquisition fails

Case studies

Conclusion

Bibliography

CHAPTER 1
INTRODUCTION

In the fast changing business world, companies have to strive hard to achieve quality and
excellence in their fields of Operation. Every Company has the prime objective to grow profitably. The
profitable growth for the companies can be possible internally as well as externally. The internal growth
can be achieved either through the process of introducing or developing new products or by expanding or
by enlarging the capacity of existing products or sustained improvement in sales. External growth can be
achieved by acquisition of existing business firms. Mergers and Acquisitions (M&A) are quite important
forms of external growth. In todays globalized economy, mergers and acquisitions are being increasingly
used the world over as a strategy for achieving a larger asset base, for entering new markets, generating
greater market shares/additional manufacturing capacities, and gaining complementary strengths and
competencies, to become more competitive in the marketplace.
Mergers and Acquisitions (M&A) are an extensive worldwide phenomenon and Mergers and
Acquisitions (M&A) have emerged as the natural process of business restructuring throughout the world.
The last two decades have witnessed extensive mergers and acquisitions as a strategic means for
achieving sustainable competitive advantage in the corporate world. Mergers and Acquisitions (M&A)
have become the major force in the changing environment. The policy of liberalization, decontrol and
globalization of the economy has exposed the corporate sector to domestic and global competition.
Mergers and Acquisitions (M&A) have also emerged as one of the most effective methods of corporate
structuring, and have therefore, become an integral part of the long-term business strategy of corporate
sector all over the world. Almost 85 percent of Indian companies are using M&A as a core growth
strategy.
All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers,
and other forms of corporate restructuring. Thus important issues both for business decision and public
policy formulation have been raised. No company is regarded safe from takeover possibility. On the more
positive side Mergers and Acquisitions may be critical for the healthy expansion and growth of the
company. Successful entry into new product and geographical markets may require Mergers and
Acquisitions (M&A) at some stage in the companys development. Successful competition in
international markets may depend on capabilities obtained in a timely and efficient fashion through
Mergers and Acquisitions (M&A). Many have argued that mergers increase value and efficiency and
move resources to their highest and best uses, thereby increasing shareholder value. To opt for a merger is
a complex affair, especially in terms of technicalities involved. Thus, Mergers and Acquisitions (M&A)
for corporate sector are the strategic concepts to take it up carefully. On observation it was found that
such business combinations, which may take forms of mergers, acquisitions, amalgamations and

takeovers, are important features of corporate structural changes. They have played an important role in
external growth also.

CHAPTER 2
MERGER AND ACQUISITION
A merger takes place when two companies combine together as equals to form an entirely new company.
Mergers are rare, since most often companies are acquired by other companies, and it is more of
absorption of operation of the target company. The term merger is more often used to show deference to
employees and former owners when another company is taken over. Mergers and acquisition are a means
to a long-term business strategy. New alliances, mergers or takeovers are usually based on company
vision and mission statements, and they have to truly reflect company corporate strategy in terms of what
it wants to achieve with the strategic move in the industry. The process of acquisition or a merger calls for
a disciplined approach by the decision makers at the company. Three important considerations should be
taken into account:
Company must be willing to take risk, and make investment early-on to benefit fully from the

merger, competitors and the industry takes heed and start to merger or acquirer themselves.
In order to reduce and diversify risk, multiple bets must be made, since some of the initiatives will

fail, while some will prove fruitful.

The management of the acquiring firm must learn to be resilient, patient and able to emulate
change owing to ever-changing business dynamics in the industry.

2.1 Types of Merger and Acquisition

Horizontal Mergers
Horizontal mergers happen when a company merges or takes over another company that offers the same
or similar product lines and services to the final consumers, which means that it is in the same industry
and at the same stage of production. Companies, in this case, are usually direct competitors. For example,
if a company producing cell phones merges with another company in the industry that produces cell
phones, this would be termed as horizontal merger. The benefit of this kind of merger is that it eliminates
competition, which helps the company to increase its market share, revenues and profits. Moreover, it
also offers economies of scale due to increase in size as average cost decline due to higher production
volume. These kinds of merger also encourage cost efficiency, since redundant and wasteful activities are
removed from the operations i.e. various administrative departments or departments suchs as advertising,
purchasing and marketing.

Vertical Mergers
A vertical merger is done with an aim to combine two companies that are in the same value chain of
producing the same good and service, but the only difference is the stage of production at which they are
operating. For example, if a clothing store takes over a textile factory, this would be termed as vertical
merger, since the industry is same, i.e. clothing, but the stage of production is different: one firm is works
in territory sector, while the other works in secondary sector. These kinds of merger are usually
undertaken to secure supply of essential goods, and avoid disruption in supply, since in the case of our
example, the clothing store would be rest assured that clothes will be provided by the textile factory. It is
also done to restrict supply to competitors, hence a greater market share, revenues and profits. Vertical
mergers also offer cost saving and a higher margin of profit, since manufacturers share is eliminated.
Concentric Mergers
Concentric mergers take place between firms that serve the same customers in a particular industry, but
they dont offer the same products and services. Their products may be complements, product which go
together, but technically not the same products. For example, if a company that produces DVDs mergers
with a company that produces DVD players, this would be termed as concentric merger, since DVD
players and DVDs are complements products, which are usually purchased together. These are usually
undertaken to facilitate consumers, since it would be easier to sell these products together. Also, this
would help the company diversify, hence higher profits. This would enable business to offer one-stop
shopping, and therefore, convenience for consumers. The two companies in this case are associated in
some way or the other. Usually they have the production process, business markets or the basic
technology in common. It also includes extension of certain product lines. These kinds of mergers offer
opportunities for businesses to venture into other areas of the industry reduce risk and provide access to
resources and markets unavailable previously.
Conglomerate Merger
When two companies that operates in completely different industry, regardless of the stage of production,
a merger between both companies is known as conglomerate merger. This is usually done to diversify into
other industries, which helps reduce risks.

MAJOR POINTS OF DISTINCTION BETWEEN MERGERS AND ACQUISITION ARE AS

FOLLOWS

MERGER

ACQUISITION

Target company disappears

Target company continues

Consideration is exchange of shares

Consideration can be exchange of shares

or cash or both

No more tax implications

Usually tax liability

No sales tax implications

Sales tax implication

No out flow of funds by acquiring

Outflows of funds may take place

company

Cannot acquire part

Can acquire part

2.2 Motives in Merger and acquisition

If strategy is choice, then what motives lie behind a choice to take a risk by investing in a takeover or
merging with another firm? Its an important question and one that students researching external growth
via takeovers and mergers need to consider. By understanding the key motives for a takeover, it makes it
easier for students to evaluate the likely success or failure of the transaction, including the potential for
synergies to provide sufficient shareholder value.:
The motives for M&A into three main groups:
(1) Strategic
(2) Financial
(3) Managerial
Strategic:
In general, strategic motives tend to be the easiest to justify and the majority of transactions they are the
most influential and important. However, just because there is a strong stated strategic motive doesnt
guarantee success. The chosen takeover target might be the wrong one; the price paid might be too high;
the integration process poorly managed. On balance, though, if a takeover has a sensible strategic fit (it
makes sense in that it supports the achievement of corporate objectives) then a student can legitimately
suggest a takeover had the right motives.
As you can see from the graphic below, there is a wide variety of potential strategic motives. Indeed, a
takeover can have more than one strategic motive - it all depends on what the corporate objectives are.
For example, takeovers that involve horizontal integration (e.g. Cooperative / Somerfield & WM
Morrison / Safeway) are often pursued to increase both the scale and the market share of the combined
firm. Successful horizontal integration ought to involve the achievement of significant cost synergies,
which in turn ought to lead to higher profit margins and lower unit costs, which therefore ought to be
make the combined business more competitive.
Financial:
All takeovers and mergers have financial motives of one kind or another - each is designed to
achieve a satisfactory rate of return for the investment and risk been taken, However, there are also
circumstances where the underlying motive for the transaction is financial rather than strategic. In other
words, it is the financial returns that are most important and which drive the deal.

A good example for students to consider would be any takeover involving a private equity (or
venture capital) buyer. Private equity firms are professional investors who manage investment funds
specifically designed to be used in corporate transactions. These can range from relatively smallscale management buy-outs to much larger leveraged buy-outs where a substantial proportion of the
finance used is in the form of debt (rather than equity).
Private equity firms have been highly active in takeovers across developed economies for many
years now. Almost by definition, they do not have strategic motives for their investments, since they are
simply acting as financial investors.
Managerial :
When a takeover or merger fails, you can often trace it back to what are called managerial
motives. In general these are bad news for the shareholders of a business that is pursuing the takeover; it
often results in a transaction that destroys significant amounts of shareholder value.
Improving financial performance or reducing risk
1. Economies of scale: This refers to the fact that the combined company can often reduce its fixed
costs by removing duplicate departments or operations, lowering the costs of the company relative
to the same revenue stream, thus increasing profit margins.
2. Economy of scope: This refers to the efficiencies primarily associated with demand-side changes,
such as increasing or decreasing the scope of marketing and distribution, of different types of
products.
3. Increased revenue or market share: This assumes that the buyer will be absorbing a major
competitor and thus increase its market power (by capturing increased market share) to set prices.
4. Cross-selling: For example, a bank buying a stock broker could then sell its banking products to
the stock broker's customers, while the broker can sign up the bank's customers for brokerage
accounts. Or, a manufacturer can acquire and sell complementary products.
5. Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage by
reducing their tax liability. In the United States and many other countries, rules are in place to
limit the ability of profitable companies to "shop" for loss making companies, limiting the tax
motive of an acquiring company.
6. Geographical or other diversification: This is designed to smooth the earnings results of a
company, which over the long term smoothens the stock price of a company, giving conservative
investors more confidence in investing in the company. However, this does not always deliver
value to shareholders.

CHAPTER 3
LAWS OF REGULATING MERGER AND ACQUISITION

3.1 The companies act, 1956

Section 390 to 395 of Companies Act, 1956 deal with arrangements, amalgamations, mergers and the
procedure to be followed for getting the arrangement, compromise or the scheme of amalgamation
approved. Though, section 391 deals with the issue of compromise or arrangement which is different
from the issue of amalgamation as deal with under section 394, as section 394 too refers to the procedure
under section 391 etc., all the section are to be seen together while understanding the procedure of getting
the scheme of amalgamation approved. Again, it is true that while the procedure to be followed in case of
amalgamation of two companies is wider than the scheme of compromise or arrangement though there
exist substantial overlapping.
The procedure to be followed while getting the scheme of amalgamation and the important points, are as
follows:(1) Any company, creditors of the company, class of them, members or the class of members can file an
application under section 391 seeking sanction of any scheme of compromise or arrangement. However,
by its very nature it can be understood that the scheme of amalgamation is normally presented by the
company. While filing an application either under section 391 or section 394, the applicant is supposed to
disclose all material particulars in accordance with the provisions of the Act.
(2) Upon satisfying that the scheme is prima facie workable and fair, the Tribunal order for the meeting of
the members, class of members, creditors or the class of creditors. Rather, passing an order calling for
meeting, if the requirements of holding meetings with class of shareholders or the members, are
specifically dealt with in the order calling meeting, then, there wont be any subsequent litigation. The
scope of conduct of meeting with such class of members or the shareholders is wider in case of
amalgamation than where a scheme of compromise or arrangement is sought for under section 391.
(3) The scheme must get approved by the majority of the stake holders viz., the members, class of
members, creditors or such class of creditors. The scope of conduct of meeting with the members, class of
members, creditors or such class of creditors will be restrictive some what in an application seeking
compromise or arrangement.

(4) There should be due notice disclosing all material particulars and annexing the copy of the scheme as
the case may be while calling the meeting.
(5) In a case where amalgamation of two companies is sought for, before approving the scheme of
amalgamation, a report is to be received form the registrar of companies that the approval of scheme will
not prejudice the interests of the shareholders.
(6) The Central Government is also required to file its report in an application seeking approval of
compromise, arrangement or the amalgamation as the case may be under section 394A.
(7) After complying with all the requirements, if the scheme is approved, then, the certified copy of the
order is to be filed with the concerned authorities.
3.2 The Competition Act, 2002
following provisions of the Competition Act, 2002 deals with mergers of the company:(1) Section 5 of the Competition Act, 2002 deals with Combinations which defines combination by
reference to assets and turnover
(a) exclusively in India and
(b) in India and outside India.
For example, an Indian company with turnover of Rs. 3000 crores cannot acquire another Indian company
without prior notification and approval of the Competition Commission. On the other hand, a foreign
company with turnover outside India of more than USD 1.5 billion (or in excess of Rs. 4500 crores) may
acquire a company in India with sales just short of Rs. 1500 crores without any notification to (or
approval of) the Competition Commission being required.
(2) Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a
combination which causes or is likely to cause an appreciable adverse effect on competition within the
relevant market in India and such a combination shall be void.
All types of intra-group combinations, mergers, demergers, reorganizations and other similar transactions
should be specifically exempted from the notification procedure and appropriate clauses should be
incorporated in sub-regulation 5(2) of the Regulations. These transactions do not have any competitive
impact on the market for assessment under the Competition Act, Section 6.

3.3 Foreign Exchange Management Act,1999

The foreign exchange laws relating to issuance and allotment of shares to foreign entities are contained in
The Foreign Exchange Management (Transfer or Issue of Security by a person residing out of India)
Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May, 2000. These regulations provide
general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India
or recording in its books any transfer of security from or to such person. RBI has issued detailed
guidelines on foreign investment in India vide Foreign Direct Investment Scheme contained in
Schedule 1 of said regulation.
3.4 SEBI Take over Code 1994
SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15% up to 55%,
provided the acquirer does not acquire more than 5% of shares or voting rights of the target company in
any financial year. [Regulation 11(1) of the SEBI Takeover Regulations] However, acquisition of shares
or voting rights beyond 26% would apparently attract the notification procedure under the Act. It should
be clarified that notification to CCI will not be required for consolidation of shares or voting rights
permitted under the SEBI Takeover Regulations. Similarly the acquirer who has already acquired control
of a company (say a listed company), after adhering to all requirements of SEBI Takeover Regulations
and also the Act, should be exempted from the Act for further acquisition of shares or voting rights in the
same company.
3.5 The Indian Income Tax Act (ITA), 1961
Merger has not been defined under the ITA but has been covered under the term 'amalgamation' as
defined in section 2(1B) of the Act. To encourage restructuring, merger and demerger has been given a
special treatment in the Income-tax Act since the beginning. The Finance Act, 1999 clarified many issues
relating to Business Reorganizations thereby facilitating and making business restructuring tax neutral. As
per Finance Minister this has been done to accelerate internal liberalization. Certain provisions applicable
to mergers/demergers are as under: Definition of Amalgamation/Merger Section 2(1B). Amalgamation
means merger of either one or more companies with another company or merger of two or more
companies to form one company in such a manner that:
(1) All the properties and liabilities of the transferor company/companies become the properties and
liabilities of Transferee Company.
(2) Shareholders holding not less than 75% of the value of shares in the transferor company (other than
shares which are held by, or by a nominee for, the transferee company or its subsidiaries) become
shareholders of the transferee company.
The following provisions would be applicable to merger only if the conditions laid down in section 2(1B)
relating to merger are fulfilled:

(1) Taxability in the hands of Transferee Company Section 47(vi) & section 47
(a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the transferee
company on merger is not regarded as transfer and hence gains arising from the same are not chargeable
to tax in the hands of the shareholders of the transferee company. [Section 47(vii)]
(b) In case of merger, cost of acquisition of shares of the transferee company, which were acquired in
pursuant to merger will be the cost incurred for acquiring the shares of the transferor company. [Section
49(2)].
3.6 Mandatory permission by the courts
any scheme for mergers has to be sanctioned by the courts of the country. The company act provides that
the high court of the respective states where the transferor and the transferee companies have their
respective registered offices have the necessary jurisdiction to direct the winding up or regulate the
merger of the companies registered in or outside India.
The high courts can also supervise any arrangements or modifications in the arrangements after having
sanctioned the scheme of mergers as per the section 392 of the Company Act. Thereafter the courts would
issue the necessary sanctions for the scheme of mergers after dealing with the application for the merger
if they are convinced that the impending merger is fair and reasonable.
The courts also have a certain limit to their powers to exercise their jurisdiction which have essentially
evolved from their own rulings. For example, the courts will not allow the merger to come through the
intervention of the courts, if the same can be effected through some other provisions of the Companies
Act; further, the courts cannot allow for the merger to proceed if there was something that the parties
themselves could not agree to; also, if the merger, if allowed, would be in contravention of certain
conditions laid down by the law, such a merger also cannot be permitted. The courts have no special
jurisdiction with regard to the issuance of writs to entertain an appeal over a matter that is otherwise
final, conclusive and binding as per the section 391 of the Company act.
3.7 Stamp duty
Stamp act varies from state to State. As per Bombay Stamp Act, conveyance includes an order in respect
of amalgamation; by which property is transferred to or vested in any other person. As per this Act, rate of
stamp duty is 10 per cent.

3.8 Amendments In Companies Act 1956

PROVISIONS FOR MERGER & AMALGAMATION
Under Companies Act, 1956 Section 390-396A.
Under Companies Act, 2013- Section 230-240
Merger is generally a scheme of arrangement or Compromise between a Company, Shareholders and
Creditors , whereas, Amalgamation is defined under section 2(1b) of Income Tax Act, 1961 as a Merger
of one or more Companies with another Company or Merger of two or more Companies to form a new
Company.
DISCLOSURES IN CONNECTION WITH MERGER & AMALGAMATION
Under Companies Act, 1956
Tribunal had Power to sanction any compromise or arrangements with creditors and members if satisfied
that company or any other person by whom an application has been made (by way of first motion
Petition) has disclosed all material facts relating to company with an affidavit such as latest financial
position of the Company, accounts of the company, latest auditor's report etc. For the compliance part, the
notice of meeting was required to be sent along with statement setting forth the terms of the compromise
or arrangement and explaining its affect in particular, the statement must state all material interest of
directors of the company, whether in their capacity as such or as member or creditors of company or
otherwise. The tribunal should also give notice to Central Government (Regional Director and Registrar
of Companies) and shall take into consideration the representations, if any, made to it by that government
before passing any order. Also, during the same period there was a requirement of newspaper publication
and any objections by any of the shareholders, creditors if any, be raised before the Court during the
hearing of the second motion Petition. All disclosure provision under 1956 Companies Act has been
stated.2

Under Companies Act, 2013

The provisions of section 230 of the Companies Act, 2013 provide the additional disclosure if the
proposed scheme involves; Reduction of Share Capital or the scheme is of Corporate Debt restructuring;
consented not less then 75% in value of secured creditors, Every notice of meeting about scheme to
disclose valuation report explaining affection various shareholders. Further, no compromise or
arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been
filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards prescribed under section 133
of the Companies Act, 2013.
As per the provisions of Companies Act, 2013 dealing with the Arrangements; notice of meeting to
consider Compromise or arrangement to be given to Central Government, Income Tax Authorities,
Reserve Bank, Securities Exchange Board of India, Registrar of Companies, respective Stock Exchange,
Official Liquidator, Competition Commission of India and other Authorities likely to be affected by the
same.
These Authorities can voice their concern within 30 days of receipt of notice, failing which it will be
presumed that they have no objection to the scheme3.

CROSS BORDER MERGER & AMALGAMATION

Under Companies Act, 1956
As per section 394, Court can sanction arrangement between two or more Companies where whole or part
of undertaking, property or liability of any company referred to as transferor Company is to be transferred
to another company referred as transferee company. According to the provisions of Companies Act, 1956,
Inbound merger (Foreign Company merges into an Indian Company) was permissible however, outbound
merger (Indian company cannot merge with foreign Company) was not allowed. According to this section
only inbound merger is allowed where transferor/target company means any body corporate whether or
not registered under 1956 Act, that a foreign company could be transferor or target company. Transferee
Company means an Indian Company. Cross Border merger allowed under 1956 Act as long as the
Acquirer/transferee is Indian Company.

Under Companies Act, 2013

In bound and out bond foreign company merger are allowed, which means Foreign Company merging
into Indian Company and Indian Company merging into foreign Company could be done with RBI
approval. Therefore both these options are open under 2013 Act if foreign companies to be in notified
countries, under Exchange Control Regulation, shares can be issued under Automatic route to nonresident, subject to certain consideration, consideration to shareholders of merging Company may include
cash, depository receipts or combination of both. This section has widen the scope for Indian Companies
as now they have both options of arrangement4.
FAST TRACK MERGER
Fast Track merger or quick form merger is the new provision which is added in Companies Act, 2013.
Fast track merger is merger between two or more small companies5, holding company and its wholly own
subsidiary and such other company as may be prescribed.
Fast Track merger does not involve Court or Tribunal, approval of National Company Law Tribunal is
also not required. For fast track merger board of directors of both the Companies would approve the
scheme. However, notice has to be issued to ROC and official liquidator and objections / suggestions has
to be placed before the members. The scheme needs to be approved by members holding at least 90
percent of the total number of shares or by creditors representing nine-tenths in value of the creditors or
class of creditors of respective companies.6 Once the scheme is approved, notice would have to be given
to the Central Government, ROC and Official Liquidator. NCLT may confirm the scheme or order that
consider as normal merger under section 232 of Companies Act, 2013.
Therefore Fast track merger will be a speedy process as it does not require approval for NCLT available
to certain kind of truncations. It opens the scope for small companies who wanted to merge and can
propose the scheme of Merger or Amalgamation through their Board of directors. There is also no
requirement for sending notices to RBI or income-tax or providing a valuation report or providing auditor
certificate for complying with the accounting standard.
OBJECTION TO SCHEME OF AMALGAMATION
Scheme of Amalgamation can be objected as per section 230(4) of Companies Act, 2013, only by
shareholders having not less than 10% holdings or creditors debt is not less than 5% of total outstanding
debt as per the last audited financial statement. whereas earlier under Companies Act, 1956 there was no
such limit which state that person holding even 1% in the company can object the scheme which was not
fair at all therefore the new threshold limit for raising objections in regard to scheme or arrangement will
protect the scheme from small shareholders' and creditors' unnecessary litigation and objection.

MEETING OF CREDITORS/SHAREHOLDERS TO APPROVE THE SCHEME

Under Companies Act, 1956
Scheme to approved by 3/4th value of creditors or members, agree to scheme, then it will be binding, if
sanctioned by court as stated under section 391(2), voting in person or a proxy at meeting. E-Voting is not
permitted under 1956 Act.

Under Companies Act, 2013

Scheme is to be approved by 3/4th of creditors or members, agree to scheme, then it will be binding, if
sanctioned by National Company Law Tribunal as stated under section 230(6)(1). The 2013 Act
additionally allows the approval of the scheme by postal ballot. Postal ballot gives an equal opportunity of
vote to all stake holders. E-Voting is permitted under new 2013 Act. Therefore concept of E-Voting is
introduced under new Act and section 108 of the Companies Act, 2013 read with rule 20 of
Companies(Management and Administrative) rules, 2014 deal with exercise of right to vote by member
by electronic means. Therefore postal ballot system and introduction E-Voting will protect the
shareholders interest and will also increase the participation of shareholders of the company in voting.
MERGER OF A LISTED COMPANY INTO UNLISTED COMPANY7
The Companies Act, 2013 requires that in case of merger between a listed transferor company and an
unlisted transferee company, transferee company would continue to be unlisted until it becomes listed.
Shareholders of listed Company have the option to exit on payment of value of their shares, as otherwise
they will continue as a shareholder of the unlisted company. the Payment to such shareholders willing to
exit shall be made on pre-determined price formula or after valuation. Whereas; under Companies Act,
1956 there was no such provision. Therefore reverse merger of listed Company into an unlisted Company
does not automatically result in a listing of surviving entity, which may be the unlisted Company.
BODY OF APPROVING MERGER
Approval of scheme requires an independent body of oversight and fairness. According to 1956
Companies Act , scheme of arrangement was to be approved by respective High Court which has
jurisdiction over Acquirer and Target companies. Whereas; under Companies Act, 2013 National
Company Law Tribunal will deal with matters related to Merger & Acquisition.
NCLT would be one specified body dealing with cases opposed to multiple High Court in case of the
companies falling under the jurisdiction of different high courts.
VALUATION REPORT
The 2013 Act makes it mandatory that notice of meeting to discuss a scheme must be accompanied by
valuation report prepared by an expert whereas, Companies Act,1956 Act is silent on disclosing the
valuation report to the stakeholders, as a matter of transparency and good corporate governance. Courts
also required annexing of the valuation report to the application submitted before them.

CHAPTER 4
LEGAL FRAME FOR MERGER AND ACQUISITION

Legal Procedure For Bringing About Merger Of Companies

(1) Examination of object clauses:
The MOA of both the companies should be examined to check the power to amalgamate is available.
Further, the object clause of the merging company should permit it to carry on the business of the merged
company. If such clauses do not exist, necessary approvals of the share holders, board of directors, and
company law board are required.
(2) Intimation to stock exchanges:
The stock exchanges where merging and merged companies are listed should be informed about the
merger proposal. From time to time, copies of all notices, resolutions, and orders should be mailed to the
concerned stock exchanges.
(3) Approval of the draft merger proposal by the respective boards:
The draft merger proposal should be approved by the respective BODs. The board of each company
should pass a resolution authorizing its directors/executives to pursue the matter further.
(4) Application to high courts:
Once the drafts of merger proposal is approved by the respective boards, each company should make an
application to the high court of the state where its registered office is situated so that it can convene the
meetings of share holders and creditors for passing the merger proposal.
(5) Dispatch of notice to share holders and creditors:
In order to convene the meetings of share holders and creditors, a notice and an explanatory statement of
the meeting, as approved by the high court, should be dispatched by each company to its shareholders and
creditors so that they get 21 days advance intimation. The notice of the meetings should also be published
in two news papers.
(6) Holding of meetings of share holders and creditors:
A meeting of share holders should be held by each company for passing the scheme of mergers at least
75% of shareholders who vote either in person or by proxy must approve the scheme of merger. Same
applies to creditors also.

(7) Petition to High Court for confirmation and passing of HC orders:

Once the mergers scheme is passed by the share holders and creditors, the companies involved in the
merger should present a petition to the HC for confirming the scheme of merger. A notice about the same
has to be published in 2 newspapers.
(8) Filing the order with the registrar:
Certified true copies of the high court order must be filed with the registrar of companies within the time
limit specified by the court.
(9) Transfer of assets and liabilities:
After the final orders have been passed by both the HCs, all the assets and liabilities of the merged
company will have to be transferred to the merging company.
(10) Issue of shares and debentures:
The merging company, after fulfilling the provisions of the law, should issue shares and debentures of the
merging company. The new shares and debentures so issued will then be listed on the stock exchange.
Waiting Period In Merger
International experience shows that 80-85% of mergers and acquisitions do not raise competitive
concerns and are generally approved between 30-60 days. The rest tend to take longer time and, therefore,
laws permit sufficient time for looking into complex cases. The International Competition Network, an
association of global competition authorities, had recommended that the straight forward cases should be
dealt with within six weeks and complex cases within six months.
The Indian competition law prescribes a maximum of 210 days for determination of combination, which
includes mergers, amalgamations, acquisitions etc. This however should not be read as the minimum
period of compulsory wait for parties who will notify the Competition Commission. In fact, the law
clearly states that the compulsory wait period is either 210 days from the filing of the notice or the order
of the Commission, whichever is earlier. In the event the Commission approves a proposed combination
on the 30th day, it can take effect on the 31st day. The internal time limits within the overall gap of 210
days are proposed to be built in the regulations that the Commission will be drafting, so that the over
whelming proportion of mergers would receive approval within a much shorter period.
The time lines prescribed under the Act and the Regulations do not take cognizance of the compliances to
be observed under other statutory provisions like the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (SEBI Takeover Regulations). SEBI Takeover Regulations require the
acquirer to complete all procedures relating to the public offer including payment of consideration to the

shareholders who have accepted the offer, within 90 days from the date of public announcement.
Similarly, mergers and amalgamations get completed generally in 3-4 months time. Failure to make
payments to the shareholders in the public offer within the time stipulated in the SEBI Takeover
Regulations entails payment of interest by the acquirer at a rate as may be specified by SEBI. [Regulation
22(12) of the SEBI Takeover Regulations] It would therefore be essential that the maximum turnaround
time for CCI should be reduced from 210 days to 90 days.

CHAPTER 5
WHY MANY MERGER AND ACQUISITION FAIL
From an entrepreneurs-eye-view, M&A provides lucrative shareholder exits. Viewed through the lens of
the public company, innovation-through-acquisition can be a legitimate strategy for entering exciting new
technologies or markets by first allowing startups to do the de-risking.
And yet history shows that, in at least half of all cases, after the deal closes, acquisitions sour. (There are
dozens of studies and papers, and estimates of how many M&A deals fail to meet financial expectations
run from 50 percent to as high as 90 percent.)
So all too often from a startups perspective, the good news is that entrepreneurs, option-holders and
investors cash out, but the bad news is that the employees find themselves in an oxygen-starved
bureaucracy and the startups customers end up confused or even orphaned. And from the acquiring
companys perspective, its all too common for the business advantages they sought some combination
of access to new products, access to new markets or geographies, market share increases, growth faster
than purely organic growth, and/or economies of scale to simply fail to materialize.
Ive sat on both sides of the fence in M&A on multiple occasions, selling my startups to public companies
as well as being on the acquiring side. Ive witnessed things from the executive seat, the board seat, and
as an advisor, and Ive experienced superb outcomes, mediocre results, and unmitigated disasters.
From that perspective, heres my list of 6 key reasons why M&A deals come unraveled after the fact
and what you can do about it:
1. Misgauging Strategic Fit
If the acquisition is too far outside the parent companys core competency, things arent likely to work. A
company that sells to its business customers chiefly through catalog and Internet sales ought to be very
cautious about acquiring a company that relies on direct sales even if the products are, broadlyspeaking, in the same industry. Similarly, a company whose traditional strength lies in selling products to
businesses might want to think twice before making a foray into a consumer-oriented business.
Consulting firms have been known to acquire software companies driven by the rationale that the parents
client companies use these sorts of software apps, and the applications are in the same broad domain as
the consulting firms expertise; then they discover that selling B2B applications is wholly different from
managing consulting engagements. An honest strategy audit up-front is the answer: dont stray beyond
your core competencies, and ask whether the target company fits your strategy, your operations, and your
distribution channels.

2. Getting the Deal Structure Or Price Wrong

We all understand that if the acquiring company pays too much in an auction environment, its going to be
tough to get the acquisition to show a positive ROI. To protect themselves, some acquiring companies like
to structure acquisitions with half or more of the purchase price held back based on achievement of future
performance hurdles. But watch out: such earn-outs can backfire on the acquiring company in unexpected
ways. If, for instance, a major payment milestone is based on post-acquisition sales performance but 99
percent of the sales people are working for the parent company and therefore are neither aware of nor
incentivized by the sales milestones then the acquired company employees may well feel demoralized
due to having scant control over achieving major payment milestones. Ive seen similar things happen
with product-delivery-oriented earn-out payments: the good news is that the parent company hires in
dozens of additional product developers, but the bad news is that only a tiny proportion of the newlyconstituted product team knows about or is incentivized by achievement of a major earn-out milestone for
the acquired company. In both cases, well-intentioned deal structures that held back payments based on
future performance ended up having unintended consequences and souring the deal. The better bet
easier said than done is negotiating a fair price up-front.
3. Misreading The New Companys Culture
Just because your two companies are in the same industry doesnt mean youve got the same culture. Its
all too easy for the acquiring companys integration team to swagger in with winners syndrome, and
fulfill the worst fears of the new staff. Far better if they enter the new companys offices carrying
themselves with the four Hs: honesty, humanity, humility, and humor.
4. Not Communicating Clearly Or Enough
In the absence of information and clear communication, rumors will fly, and people at the acquiring
company will assume the worst. Communicate to the entire team, not just the top
executives. Communicate clearly and honestly and consistently. If theres bad news, be sure to deliver it
all it once, not piecemeal, and make it clear that thats all there is that folks dont have to worry waiting
for another shoe to drop. And when you think youve communicated enough, youre one-quarter of the
way there.
5. Blindly Focusing On Integration For Its Own Sake
Dont assume that all integration is good. Ive watched all too often as the parent company insists on
fixing things that arent broken: The acquired company has established a strong brand, but the parent
insists on improving things by replacing it with something that blandly blends with the corporate
naming conventions. New standard operating procedures are imposed that suck all the oxygen from the

room and demoralize the team. A small sales team has clear account authority, but the parent knows better
and makes the newly-acquired offering the 1,400th anonymous product in its sales forces price list. The
acquired product works perfectly well as-is, but the parent company insists on rebuilding it so that it fits
into the parents technical architecture thereby punishing customers and freezing all product
enhancements for years. The bottom line is dont be too heavy-handed. If this company was worth
acquiring, its probably worth trusting, funding and encouraging to thrive.
6. Not Focusing Enough On Customers And Sales (vs. Cost Synergies)
The most fundamental scorecard of acquisition success is financial performance, and on that count its far
more important to focus on revenue growth than cost control. An insightful McKinsey study (published a
decade ago, but whose conclusions remain completely valid) pointed out that small changes in revenue
can outweigh major changes in planned cost savings. A merger with a 1% shortfall in revenue growth
requires a 25% improvement in cost savings to stay on-track to create value. Conversely, exceeding your
revenue-growth targets with your newly-acquired company by only 2 to 3 percent can offset a 50 percent
failure on cost-reduction.
And the worst thing you can do is have a sales drop-off immediately after the acquisition which is all
too common given confusion among the newly-merged team and the customer base because you can
never make up those lost sales. Knowing the paramount importance of uninterrupted revenue read: sales
momentum the first thing the parent company ought to do in concert with the acquired-company team is
get out in front of customers, tell them whats going on, and reassure them. Yet its amazing how rarely
that happens. As with the acquired companys staff, with their customers, in the absence of clear
communication, rumors and negative assumptions will fill the void. So get out in front of your newlyacquired customers, tell them theyre still loved, and provide them with a clear, comfortable, consistent
and honest story. And when you think youre done communicating with your new customers youre
probably one-quarter of the way there.

CHAPTER 6
CASE STUDIES
CAPGEMINI AQUIRES IGATE
Paris-headquartered IT services and software company Capgeminis acquisition of IGate for over $4
billion is much more than just getting a stronger presence in India.
The acquisition just shows how the European firms are getting aggressive to take the share in the global
IT services market, which so far has been dominated by US players, Indian IT player. The sole company
that has managed to be a serious contender to global players has been Accenture. The Ireland incorporated
firm boost revenue of $30 billion in 2014, much ahead of both Capgemini and Atos.
Capgemini is not new to acquiring India based companies. In 2006 it acquired Kanbay, which was
headquartered in the US but had operation team based out of India. The acquisition then, one of the
biggest, was done for $1.25 billion. Capegemini had given a 15.9 per cent premium to Kanbays shares
then.
But more than the valuation it was the strong foothold that Capgemini got in the banking industry.
Kanbay boosted of clients such as Household International, Morgan Stanley among others.
Despite the acquisition of Kanbay and then other targets, Capgeminis growth in taking the bigger share
of the US market was not as fast as compared to some of the Indian or MNC players.
Rather European firms in the services sector have been a tad slow in taking on the outsourcing pie share.
This is not only true for Capgemini, but also for its closest peer and competitor Atos.
Atos too in a bid to diversify has over the past few years stepped on the gas on inorganic route. It recently
signed a deal to acquire Xeroxs ITO business for $1.05 billion. This acquisition while tripled its US
revenues it also enhanced its presence offshore capabilities. The acquisition gave the company centre in
India, Mexico and Philippines.
IGate is a good strategic fit for Capgemini it is of a size big enough to move the needle yet small enough
to absorb. Capgemini is better positioned to absorb IGate than it was the EY consulting practice, said
Peter Bendour-Samuel, CEO, Everest Group.
With IGate Capgemini will further up its share in the US. According to the companys release the
acquisition grows its presence in North America, it is at the top of the Groups strategic agenda. The
combination of IGATE and Capgemini increases the groups revenues in the region by 33 per cent to an
estimated $4 billion, making North America its first market with approximately 30 per cent of the pro-

forma combined revenues in 2015. An estimated 50,000 employees will be servicing Capgeminis North
American clients.
Analyst however, feel that Capgemini should focus on acquiring newer technology that will give it a
niche focus. Most of the leading service providers today are looking at niche buys that specifically add
software IP or a vertical capability, such as Cognizant/Trizetto, or Infosys/Panaya However, in
Capgeminis case, there are still some significant holes in its portfolio to fill out, most notably a more
powerful presence in India, a stronger portfolio of US enterprise clients, and a deeper foothold in
financial services. iGATE brings these to the table. Net-net, we applaud the boldness of this move, and
hope, for Capgeminis sake, the French mothership can integrate the two firms effectively, said Phil
Fersht, CEO of US based HfS Research in his blog.
But industry experts are also saying that merger of these companies will be crucial for the success.
Integration will be challenging with two very different cultures. It has recent experience gained from the
successful acquisition of Kanbay and a growing Indian presence. Over all this is a nice move but will
require Capgemini to move quickly to successfully integrate IGate and stem any talent losses. It also
points to the growing momentum of industry consolidation and will not be the last such move, added
Bendour-Samuel.
That is perhaps one of the reasons why Capgemini wants to continue to keep IGate listed on
Nasdaq as well as continue with the branding. For us IGate is a strategic play. We do not
want to take IGate private, said Paul Hermelin, chairman and CEO of Capgemini.

TCS AQUIRE CMC

Mumbai, October 16, 2014: Tata Consultancy Services (TCS) (BSE: 532540, NSE: TCS), the leading IT
services, consulting and business solutions firm today announced that the Board of Directors of TCS and
CMC Limited (CMC), a subsidiary of TCS, have today approved the amalgamation of CMC with TCS
pursuant to the provisions of Sections 391 to 394 of the Companies Act, 1956. As per the terms of the
Scheme of Amalgamation (Scheme), shareholders of CMC will receive 79 equity share of ` 1 each of
TCS for 100 equity shares of ` 10 each of CMC. The swap ratio has been arrived at based on the valuation
report prepared by B.S.R. & Associates LLP. After the amalgamation, the paid-up share capital of TCS
will increase from ` 195.87 crore to ` 197.04 crore. The Scheme is subject to, court, regulatory,
shareholders and other necessary approvals. The consolidated revenue of TCS, for the quarter ended
September 30, 2014, was ` 23,816.48 crore, with profit after tax of ` 5,244.28 crore based on Indian
GAAP. For the same period, the consolidated revenue of CMC was ` 616.68 crore with profit after tax of `
76.00 crore based on Indian GAAP. CMC, where TCS holds a 51.12% stake, is engaged in the design,
development and implementation of software technologies and applications, providing professional
services in India and overseas, and procurement, installation, commissioning, warranty and maintenance
of imported/indigenous computer and networking systems, and in education and training. The

amalgamation will enable TCS to consolidate CMCs operations in a single company with rationalized
structure, enhanced reach, greater financial strength and flexibility aiding in achieving economies of
scale, more focused operational efforts, standardization and simplification of business processes and
productivity improvements. About Tata Consultancy Services Ltd. (TCS) Tata Consultancy Services is an
IT services, consulting and business solutions organization that delivers real results to global business,
ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of
IT, BPS, infrastructure, engineering and assurance services. This is delivered through its unique Global
Network Delivery Model, recognized as the benchmark of excellence in software development. A part
of the Tata group, Indias largest industrial conglomerate, TCS has over 310,000 of the worlds besttrained consultants in 46 countries. The company generated consolidated revenues of US $13.4 billion for
year ended March 31, 2014 and is listed on the National Stock Exchange and Bombay Stock Exchange in
India.

CHAPTER 7
CONCLUSION
Continuous growth and survival are the ultimate objectives of any organization and M&A is one of the
forms of survival strategy. One of the most important ways to grow profitably and maximizing
shareholders wealth is the nuptials of Companies in Corporate World. But painstaking pre-merger
planning including conducting appropriate due diligence, valuable communication during the integration,
efficient management and committed leadership, and pace at which the integration plan is done, together
is required to handle these nuptials of companies successfully. Mergers and Acquisitions (M&A) are the
expression of strategic concepts pertaining to the corporate sector. They envisage management of
processes related to selling, buying and combining one or more companies for obtaining a common cause.
Common cause consists of aiding, financing or assisting a company to grow at a much faster rate.
Corporate Mergers and Acquisitions are very crucial for any country's economy. This is so because the
Corporate Mergers and Acquisitions can result in significant restructuring of the industries and can
contribute to rapid growth of industries by generating Economies of Scale, increased competition in the
market and raise the vulnerability of the stockholders as the value of stocks experience ups and downs
after a merger or acquisition. Although the concept of Merger and Acquisition are different from one
another but both can be used as engines of growth. As a result, M&As are considered as most strategic
concepts to make sure growth for the companies in the Corporate world.