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The process of mergers and acquisitions has gained substantial importance in

today's corporate world. This process is extensively used for restructuring the
business organizations. 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.

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Merger is a financial tool that is used for enhancing long-term profitability by

expanding their operations. Mergers occur when the merging companies have their
mutual consent as different from acquisitions, which can take the form of a hostile
takeover.

The business laws in US vary across states and hence the companies have limited
options to protect themselves from hostile takeovers. One way a company can
protect itself from hostile takeovers is by planning shareholders rights, which is
alternatively known as - poison pill. If we trace back to history, it is observed that
very few mergers have actually added to the share value of the acquiring company.
Corporate mergers may promote monopolistic practices by reducing costs, taxes
etc.

Such activities may go against public welfare. Hence mergers are regulated d
supervised by the government, for instance, in US any merger required\s the prior
approval of the Federal Trade Commission and the Department of Justice. In US
regulation son mergers began with the Sherman Act in 1890. Mergers may be
horizontal, vertical, conglomerate or congeneric, depending or the nature of the
merging companies.


Acquisitions or takeovers occur between the bidding and the target company.
There may be either hostile or friendly takeovers. 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.

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Business firms opt for mergers and acquisitions mostly for consolidating a
fragmented market and also for increasing their operational efficiency, which give
them a competitive edge. Nations across the globe have promulgated Mergers and
Acquisitions Laws to monitor the functioning of the business units therein. An
estimate made in 2007 put the number of global competition laws at 106. They
possess merger control provisions.

While most mergers and acquisitions increase the operational efficiency of

business firms some can also lead to a building up of monopoly power. The anti-
competitive effects are achieved either through coordinated effects or unilateral
effects. Sometimes mergers and acquisitions tend to create a collusive market
structure.

However, free and fair competition is seen to maximize the consumers' interests
both in terms of quantity and price.

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As per global experience around 85% of acquisitions and mergers are devoid of
any competitive concerns. They get approval within a period of 30 to 60 days. The
remaining percentage of firms usually has a substantially long gestation period for
getting the legal approval. These cases are relatively complex and need a close
examination of the various aspects by the regulatory bodies. As per the guidelines
from "The International Competition Network" simple merger and acquisitions
cases should receive approval within a period of 6 weeks. The comparable time
frame for complex cases is 6 months. It may be noted that the 'Competition
Network' mentioned above is actually an association of international competition
authorities.

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Indian competition law grants a maximum time period of 210 days for the
determination of the combination, which comprises acquisitions, mergers,
amalgamations and the like. One needs to take note of the fact that this stated time
frame is clearly distinct from the minimum compulsory wait period for applicants.

As per the law, the compulsory period of waiting for applicants can either be 210
days starting from the day of notice filing or receipt of the Commission's order,
whichever occurs earlier. The threshold limits for firms entering business
combinations are substantially high under the Indian law. The threshold limits are
set either in terms of the asset value or in terms the firm's turnover. Indian
threshold limits are greater than those for the EU. They are twice as high when
compared with UK.

The Indian law also provides for the modern day phenomenon of merger and
acquisitions, which are cross border in nature. As per the law domestic nexus is a
pre-requisite for notification on this type of combinations.

It can be noted that Competition Act, 2002 has undergone a recent amendment.
This has replaced the the voluntary notification regime with a mandatory regime.
Of the total number of 106 countries, which possess competition laws only 9 are
thought to be credited with a voluntary notification regime. Voluntary notification
regimes are generally associated with business uncertainties. Post-combination, if
firms are seen to be involved in anti-competitive practices de-merger shows the
way out.

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Merger refers to the process of combination of two companies, whereby a new

company is formed. An acquisition refers to the process whereby a company
simply purchases another company. In this case there is no new company being
formed. Benefits of mergers and acquisitions are quite a handful.

Mergers and acquisitions generally succeed in generating cost efficiency through

the implementation of economies of scale. It may also lead to tax gains and can
even lead to a revenue enhancement through market share gain.

The principal benefits from mergers and acquisitions can be listed as increased
value generation, increase in cost efficiency and increase in market share.

Mergers and acquisitions often lead to an increased value generation for the
company. It is expected that the shareholder value of a firm after mergers or
acquisitions would be greater thanthe sum of the shareholder values of the parent
companies.

An increase in cost efficiency is effected through the procedure of mergers and

acquisitions. This is because mergers and acquisitions lead to economies of scale.
This in turn promotes cost efficiency. As the parent firms amalgamate to form a
bigger new firm the scale of operations of the new firm increases. As output
production rises there are chances that the cost per unit of production will come
down.

An increase in market share is one of the plausible benefits of mergers and

acquisitions. In case a financially strong company acquires a relatively distressed
one, the resultant organization can experience a substantial increase in market
share. The new firm is usually more cost-efficient and competitive as compared to
its financially weak parent organization. It can be noted that mergers and
acquisitions prove to be useful in the following situations:

Firstly, when a business firm wishes to make its presence felt in a new market.
Secondly, when a business organization wants to avail some administrative
benefits. Thirdly, when a business firm is in the process of introduction of new
products. New products are developed by the R&D wing of a company.

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Merge r a nd D e me rge r ca n be rig htly desc ribe d as the hea d
a nd ta il pa rt o f the sa me co in . The d e me rge r p rocess is no w
ga ining imp o rta nce mo re a nd mo re be ca us e o f the ad de d
be ne fits, so c o rp orate a re no mo re o nly inte res te d in go in g
fo r me rge rs b ut a lso a re o ptin g fo r de me rgers .Me rge rs ha ve
ma n y a d va nta ge s ,so there is a lwa ys a q uestio n w he n 2 b ig
gia nt jo ining ha nds b ring fru itful res ult to the e ntity fo r me d
the n w hy the nee d fo r de me rger .

De me r g er a s t h e na me su g g e st c o n v er s e o f Mer g er / Acq u is it io n,
wher e t he shareho lder s or owner o f t he par ent co mpany gains dir ect
o wn er s h ip o f t he d e me r g e d e nt it y . Or in o t her wo r d s De mer g er r e fe r
t o t he p r o ce ss o f t he s ep ar at io n o f co mp a n ie s o r Bu s in e s s u n it s
w h ic h ar e o p er at in g u nd er o ne s in g le u mb r e l la . B e lo w is t h e
explanat io n o f how demerger affect s t he shar eho lder ¶s int erest
be fo r e a nd a ft er t he de mer g er pr o ce s s.
 Fig ur e a be fo r e De me r g er Fig u r e b s ho w s a ft er D e me r g er
In simp le words when one co mpany, say X Ltd.
h a v i n g 1 0 u nd er t ak in g s, t r a ns fe r s o n e o r mo r e o f it s u n d er t ak i n g s t o
a ne w co mp a n y, s a y Y Lt d . , it is a ca se o f d e me r g er . X Lt d . is t he
d e me r g e d co mp a n y a n d Y Lt d . is t he r esu lt in g co mp a ny.

No w we a l l k no w t hat Un it y is t h e d iv er s it y, so wh y t he n g o fo r
demerger .T he case is similar t o t he debat e ³Jo int fa mily Vs Nuclear
fa m i l y´ . We a l l k no w t h at a Jo int fa m i l y h a v e lo t s o f ad v a nt ag e s
regar ding all round development o f a child ,shar ing o f t hought s and
e mo t io n s w it h ea c h o t h er , e co no m i es o f sc a le b y s h ar in g e x p e n s e s
a nd sa v in g s w it h e ac h o t h er , b et t er cap a b i l it y t o ad ju st w it h
u n fo r e s ee n c ir c u mst a n c es a n d ma n y mo r e . Bu t it is a lso t r u e t hat a l l
t hat sounds we ll is not necessar y well all t imes .So t he popular
p r o ve r b ± ³T w o u t e n s i ls bo u g ht t o g e t he r w i l l d e f i n it e l y p r o d u c e
sound´ T he same t heor y may apply her e so t he process o f demer ger
But t his is pr o ba bly o ne o f t he r e as o n fo r D e mer ger .
T h er e ar e o b v io u s l y v ar io u s r ea so n s fo r De me r g er s w h ic h v ar y fr o m
co mp a n y t o co mp a n y, co u nt r y t o c o u nt r y a n d i n d u st r y t o ind u st r y
. Bu t so me co m mo n r ea so n s ma y b e:

1 . T o ad ju st w it h c h a ng in g eco no mic a n d p o l it ic a l co n d it io n s.

2 . P ar e nt co mp a n y¶ s in a b i l it y t o ma x i m iz e r et u r n, t hu s g iv in g c h a n ce
fo r o t her s.

3 . Co r r ect io n o f a n y fa ls e in v e st me nt d e c is io n ma d e r eg ar d i n g st ep p i n g
int o a t ot ally differ ent fie ld o f no expert ise.

4. To raise capital ga ins fro m the assets acqu ired at the t ime o f
u nd er p er fo r ma n c e o f t h e e nt it y.

5 . Ut il iz at io n o f f in a n c ia l a nd hu ma n r e so u r c es fo r bet t er p r o f it a b l e
o p p o r t u n it ie s co mp ar e d t o t he p r e v a i l i n g e nt it y.

6. Selling o f unwant ed sur plus in t he business t her eby carr ying out t he
r est r u ct u r in g / r eo r g a n iz at io n st r at eg y a nd g et r id o f t h e s ic k e nt it y.

7 . O ne mo r e r ea so n fo r d e me r g er c a n b e fa c i l it at in g I nd ia n e nt it y t o g et
d e me r g e d fr o m t he fo r e ig n e nt it y w it h w ho m it h a s mer g ed be fo r e so
t hat fo r e ig n co mp a n y d r aw s o u t it s i n v e st me nt .

8 . M a x i m i z a t i o n o f s h a r e h o l d e r ¶ s v a l u e ±s i n c e i t i s f e l t t h a t t h e v a l u e
o f t h e bu s in e s s w h e n sep ar at e d w i l l be mo r e t ha n t he v a lu e o f t h e
group.
 9 . T o Fo cu s mo r e o n t he a ct iv it ie s o f var io u s bu s i ne s s u n it s w h ic h i s
no t p o ss ib le b y t h e g ia nt co r p o r at e. ( S i m i la r t o t he p r o p o s it io n o f
fo r m in g a se p ar at e st at e fo r b et t er ad m i n ist r at io n a nd d e ve lo p me nt ±
Jharkand and Bihar ).

1 0 . T o g et r e lie f fr o m st r ict g o ver n me nt r e g u lat io n s w h ic h t he e nt it y m a y

face before demer ger as a result o ot her business.

11. Rat ing o f t he corporat e beco mes an easy affair re lat ing t o t he specific
bus iness in which t hey have t he expert ise.

12. Changes in IT act 1999, which have made demergers t ax neut ral
h a v e mo t iv at ed t he co mp a n ie s t o g o fo r d e me r g er s

1 3 . S p l it bet w ee n fa m i l y me m b er s le a d t o t he d e mer g er g a in i n g it s
importance.

Reaso ns are unending and co nt inue t her eaft er.

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   - be ne f ic ia l fo r bo t h t he gr o up ± Aft er de mer ger FM C G Gr o up
regist ered a co mpounded annua l sales growt h o f around 12 per cent
over t he past t hree years, wit h net sa les o f Rs 1,048.5 crore and net
p r o fit o f Rs 7 2 cr o r e i n 2 0 0 2 - 0 3 .
For T he phar macy bus iness, on t he ot her hand, net sales have
d o u b led in t hr ee ye ar s . T h is d iv i s io n r ep o r t ed a net p r o fit o f R s
13.1 crore on net sa les o f Rs 184 cr ore in 2002- 03.
P h ar ma Br a n d ha v e a lr ead y 2 0 % m ar k et s h ar e in o n co lo g y p r o d u ct s
a nd h a v e a lso g o t var io u s p r o d u ct s f o r exp o r t in g t o 2 7 co u nt r ie s.

Reaso n fo r t he a bo ve d e mer g er ± bet t er gr o wt h fo r bo t h t he

e nt it y. T he ma i n r e a so n fo r t h e d e me r g er w a s t o har mo n is e st r at eg ie s ,
cr e at e o p er at io na l e f f ic ie n c ie s a n d ma x i m iz e p h ar ma ¶ s p e n et r at io n
i nt o g lo b a l mar k et t he ma in g r o wt h d r iv er s d u r in g t he f is c a l w er e it s
g lo b a l l y e x p a n d e d a nt i- ca n cer r a n g e o f p r o d u ct s a nd b r a n d s l ik e L i v -
f it , U lg e l, Ho n it u s a n d Co nt r a st in.
T h er e a ft er D a b u r P h ar ma h a ve n o t lo o k ed b e h i n d ± d e v e lo p me nt
ca me o ne b y o ne b y st r at eg ic a l l ia n ce w it h Ab bo t t Labo r at o r ies fo r
g e n er ic o n co lo g y p r o d u ct s in t he U n it ed S t at es, No ve mb e r 0 3 ,
2 0 0 3 . Fo l lo we d b y Da b u r P har ma Acq u ir in g S a le s & D ist r i b u t io n
Bu siness in T hailand - Januar y 09, 2007 , Agr eement wit h Sp an is h
ma r k et ± Oct 2 0 0 7 , Lau n c h o f I r ino t ec a n in je ct io n in I t a l y &
Denmark - march 11 2008 and many more .
2.
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Re l ia n c e I n d u st r ie s, w h ic h fo c u s e s o n e x p lo r at io n a n d p r o d u ct io n
(E&P), refining and ret ailing, and pet rochemicals is under t he
c ha ir ma n s h ip o f Mu k e s h A mb a n i a n d h is yo u ng e r br o t he r A n i l t o o k
c har g e o f bu s i n e s se s co mp r is i n g R e l ia n c e Co m mu n ic at io n Ve nt u r e s,
Re l ia n c e E n er g y V e nt u r e s, R e l ia n c e C ap it a l V e nt u r e s, a n d R e l ia n c e
Natural Resources.

T h e r e aso n p r o ba b l y wa s r i ft b et wee n br o t her s b u t t he mo v e h a s

b e n e f it ed bo t h.
E ar l ier Re l ia n c e wa s b a s ic a l l y int o i n d u st r ia l p r o du ct s bu t no w w it h
d e me r g er it h as e nt er e d int o o t her s eg me nt s l ik e r e l ia n c e
t e le co m mu n ic at io n w it h a v is io n t o br in g mo b i le co mmu n ic at io n
t o post card cost . And ot her pr ivat es are fight ing back t o br eak t he
i ma g e w h ic h Re l ia n c e mo b i le h a v e cr e at ed in t h e m ind o f cu st o mer s
by t he slogan ³kar lo Duniya Mut t hi Me´.
E v e n t he ne wer e nt it y u nd er An i l A mb a n i is t r y in g t o t ap t h e
u nt app ed fo o d pr o ce s s ing se g me nt . A lso RI L is mak ing it s w a y int o
r et a i l in d u st r ie s b y d e v e lo p in g a mo d e l o f p r o mo t in g p ar t ner s h ip
w it h far mer s , lo g ist ic s o p er at io n s, s ma l l s ho p k ee p er s , t r ad er s . T h e
demerger s have not affect ed Mukesh¶ Pet rochemica l business and he
g a in e d t h e p o s it io n o f no 1 r ank i n g b u s in e s s t yco o n a l l o v er t he
wo r ld t her e b y d e fe at in g B i l l g at e s .

3 .  #      "      #      !     t o a ne w e nt it y CE MC O. T h e
demerger process need to take place in 3 steps .
In t he ist phase L&T would hive off t he cement business int o a
se p ar at e co mp a n y, U lt r a T e c h Ce mC o , wher e it w i l l ho ld 2 0 p er ce nt .
The balance 80 per cent will be held by t he exist ing L&T
s h ar e ho ld er s p r o p o r t io nat e l y.
In t he seco nd phase, Gr asim will buy 8.5 per cent in CemCo fro m
L&T at Rs. 342.60 per shar e and make an open o ffer for anot her 30
per cent at t he same pr ice.
I f fu l l y su b s cr ib e d , t he o p e n o ff er w i l l mak e t he Ad it ya B ir la
group's ho lding in CemCo t o 51 per cent and L&T w ill realize Rs.
362 crores on sale o f its stake in U ltra Tech CemCo.
I n t h e t h ir d st ep , L & T E mp lo ye e We l fa r e Fo u nd at io n w i l l ac q u ir e
t he Bir la's 15.3 per cent st ake in t he residual engineer ing co mpany.
Var io u s o t her d e me r g er s h a ve t ak e n a r o w Gr e at E ast er n S h ip p in g ,
w h ic h is d e me r g i n g it s o ffs ho r e bu s i n e s s ; E ver ea d y I nd u st r ie s
se p ar at ed it s t ea bu s i n e s s in t o Mc L eo d Ru s s e l l; Au t o a nc i l la r y
co mp a n y Ra n e Ma d r a s t r a ns fe r r e d it s in v e st me nt s in t o sep ar at e
co mp a n y a n d t he in v e st me nt co mp a n y w a s a lso l ist ed . T h e d e me r g e r
l ist a lso i n c lu d es Var d h ma n S p in n i n g a n d Mo r ar je e R e a l it ie s . Als o
demerger s o f Ba jaj Aut o group are on t he process. Gabr ie l I ndia is
a lso lo o k in g at d e me r g i n g it s e n g in e b ear i n g s d i v is io n a n d ma y a ls o
se l l it s Mu mb a i p r o p e r t y. C a ir n I nd ia o n t h e r e o r g a n iz a t io n o f C a ir n
E n er g y P L C ' s I nd ia n b u s in e s s p r io r t o f lo t at io n.
So now t rend is changing,aft er t he lo ng merger process t aking place
, d e mer g er is no w t ak i n g it s se at . T h e ma i n a i m b e h in d d e me r g er is t o
concent rat e on t he specific bus iness in which t he y have expert ise
a nd a l lo w o t her b u s in e s s u n it s t o r a is e t he ir o w n ca p it a l . Also w e
ar e a war e o f t h e co nc ep t o f ³s h ar e ho ld er we a lt h ma x i m iz at io n ´
w h ic h is t h er e b y e n h a n c ed mo r e d u e t o d e mer g er s t ha n b y me r g er s .

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We are seeing some distinct trends in the Indian corporate scene as regards consolidation and
restructuring:

r In all Joint Ventures between Indian and foreign corporate, the Indian partner is slowly being
phased out of the partnership. Take the Toyota-Kirloskar JV or Shriram Honda as examples.
The MNC line of thinking is very clear: a clear majority implies clear direction and a clear
focus. Apart from the help in setting up the distribution channels or handling various
government compliance, there is little value that Indian companies can add to the JV, not to
mention their inability to provide periodic infusions of huge cash.
r Cross border acquisitions will increase as strong Indian companies especially from the
software sector, seek to buyout or buy into strategic niche companies abroad.
r Global competitive pressures are increasingly reflected in India and Indian companies have
so far shown their ability to innovatively counter it.

Ultimately, it is the business model, its scalability, and its niche, driven by information
technology that will determine the future of any company be it in the service or manufacturing
industry. Which business model delivers greater value will increasingly drive Mergers and
Acquisitions in India tomorrow.