Name: Mayank Khemka

JGU ID: 20161307

Date: 2nd March 2019
Word Count (Only the answer): 444

Mergers and Acquisition: Class Assignment

Problem: Business Case: JD Stereo (JD) is a Korean electronics maker specialising in audio
electronics including music players, speakers and home theatre systems. JD is keen to enter the
Indian market, but it lacks experience or knowledge of market conditions in India. It seeks
advice from you as its local legal counsel.
Would you advise: (a) strategic acquisition of an existing Indian electronics maker specialising
in the same products, (b) JV route with an Indian partner company, (c) set up a WOS in India
and conduct a triangular merger of an Indian electronics maker (specialising in the same
products) with its subsidiary?

Recommendation: My recommendation to JD Stereo will be to opt for (c) set up a WOS in

India and conduct a triangular merger of an Indian electronics maker (specialising in the
same products) with its subsidiary rather than a strategic acquisition or a joint venture for
the following reasons:

Triangular merger vs Strategic Acquisition:

A strategic acquisition might seem a better option as it offers full control of the business, best
time efficient growth and eliminates local competition but without any knowledge or
experience in the Indian market it is risky to take full control of the business despite there being
people to guide the directors and shareholders. Triangular merger on the other hand allows
sharing of costs and risks, allows economies of scale, increases resources (generally a small
company is acquired but triangular merger happens with a relatively bigger company), has
lower risk (If business is not successful the subsidiary can wind up and be separate from the
parent company) and provides for better decision making (Local and business experts make
decision together).

Joint Venture vs Triangular merger with its WOS:

There is not much difference between a Joint venture and the above-mentioned triangular
merger. However, a Wholly owned subsidiary is more convenient for purposes of
diversification and expansion into new markets. WOS limits the exposure of the parent
company if the subsidiary fails and would hardly affect the image or the functioning of the
parent company. Also, any major losses would not be fatal to the company. Furthermore, the
subsidiary can be incorporated where the laws are more favourable for the business either in
India itself or a tax haven.
Overview of steps and deal sequence:
Since it is a triangular merger of two subsidiaries, the best structure would be stock purchase.
The first step would be to find a suitable parent company for the triangular merger. The second
step would be for both the parent companies to set up their WOS. After this is done there will
be primary term sheet signing which is not binding but a pre-agreement consisting of basic
valuation, terms of merger and a timeline for the entire process. Then there will be due diligence
to identify different types of risks like financial, business, legal etc and to obtain necessary
information about the other company to help in negotiation. After the due diligence is done
then, negotiations will happen to draft the finalised agreements. Then the merger will have to
be approved by a special resolution in the shareholders meeting. If approved, then the
documents will be signed by both the parties. After signing will be the post-closing stage where
all other legal requirements will be met.