WHY MERGERS AND ACQUISITIONS ?

• 1.Reduction in cost of sourcing raw material

• Taking over a captive source
• Downward integration

• 2. Reduction in cost of production

• Increase in scale of production
• Improvement in technology

• 3. Reduction in cost of distribution

• Taking over means of transport
• Taking over a company closer to consumers
 2. WHY MERGERS AND ACQUISITIONS ?
• 4. Reduction in selling and
marketing expenses
• Increase in market share
• Reducing Competition
• Reduction in advertisement expenses
• Introducing/increasing automation
• Reducing number of employees

• 5. Reduction in managerial cost

• Improving the quality of staff
 3. WHY MERGERS AND ACQUISITIONS ?
• 6. Reduction in payment of taxes
(Tax planning)
• Taking over sick units
• Taking over unit with accumulated losses
• Unit with unprovided depreciation or arrears of
depreciation

• Mergers and acquisition may be for any one or a combination

of above factors, or
to Synergy between Transferor and Transferee companies or
for totally unconnected reasons.
 4. Demergers
• This is done by :
• Hiving off of a department / division into a separate
Company
• Hiving of a subsidiary into a full fledged separate entity

• Advantages of Demergers :
• 1. Improves leveraging capacity (a division/subsidiary may
be able to access the institution independently)
• 2. There may be scope to make separate Public Issue at
advantageous terms
• 3. Highly specialised departments can have better R & D by
separate entities
• 4 Tax neutral.
 5 Legal Safeguards- mergers
• A. Companies Act :
• The Act prescribes the following formalities :
• i. A scheme of amalgamation must be prepared
clearly defining the purpose, structure and the terms.

• ii. This is to be approved by :

• Board of Directors,
• the shareholders,
• the High Court of the place of jurisdiction, and
• the RBI if there are NRI shareholders.

• iii. There should be a specific “effective date”.

 6 Legal safegaurds-(cont)
• B. SEBI ( Substantial Acquisition of Shares and Take-
overs) Regulation, 1997, make the process of take-over more
transparent and competitive, while at the same time, protecting
the interest of small investors.
•
• The guiding principles of the Regulation are:
• * equal opportunity to all shareholders to sell their
• holdings at the bargain price;
• * support to good and efficient management;
• * transparency, fair and truthful disclosure to public;
• * avoidance of price sensitive information in public
• offer; and
• * effective revival of sick units.
 7. Legal Safegaurds(cont)
• These formalities involve issue of Public
Notice and constant monitoring by SEBI.

• The regulations deal 3 categories of takeovers viz,

• a. Negotiated Deal
• b. Open market Takeovers.
• c. Bail -out Takeovers- for sick companies.

• Creeping acquisition limit----- 5% (earlier limit 2%)

• Thresh hold limit ------------- 15% (earlier limit 10%)
 8. Takeovers/Mergers in India
• Tata Oil Mills with Hindustan Lever.
• Brook Bond Lipton(India),Ponds(India) with Hindustan
Lever.
• SCICI with ICICI Ltd.
• Consolidated Coffee was taken over by TataTea Ltd.,

• India Cement Ltd, offer to takeover Raasi Cement ,

• Offer of Sterlite Ltd to takeover Indian Aluminum Co.
• ICI ltd acquisition of 9% holding in Asian Paints
• Attempt to control ACC by Gujrat Ambuja Cement.
 9. Legal safegaurds-(cont)
• C. Sick Industrial Companies (Special Provisions) Act, 1985

• Most of the take over of sick units is done for tax planning.
The profit making Company takes over Companies with
accumulate losses to have them set-off against the current
and future profits.

• SICA gives the BIFR wider powers than those given to High
Court under the Companies Act to protect the investors.
• For example, there is no need to comply with
• Sec 391 to 395 (scheme of amalgamation),
• Sec 17 (alteration of M/A), Sec 23 (change of name),
• Sec 21 (reorganisation of Capital), Sec 100 to 106 (reduction in Capital),
Sec 224 (appointment of auditors),
• Sec 255, 256 (reconstruction of Board of Directors), Sec 198, 269 and
309 (appointment/remuneration of Managing Director etc).
 10 Winding Up.
•

• Winding up of a company is the process

whereby its life is ended and its property
administered for the benefit of its creditors
and members.

• Modes of Winding up - A company may be

would up in any one of the three ways,
• (I) compulsory winding up ie., by Court (s.433)
• (Ii) voluntary winding up; (s 484)
• (ii) voluntary winding up subject to the supervision of
the Court.(s 522)
 11.Winding up by the Court /
Compulsory Winding up
• Section 433 provides that a company may be wound up by the Court :
• (a) if the company has, by special resolution,
resolution so resolved ;

• (b) if default is made in delivering the statutory report to the

Registrar or in holding the statutory meeting,
meeting where
applicable;

• (c) if the company within a year from its incorporation, or

does not commence its business suspend its business for a
whole year,

• (d) if the number of members is reduced-

in the case of a public company, below 7, and
in the case or a private company, below 2;
 12. Compulsory winding up(cont)
• (e) if the company is unable to pay its debts ;(s 434)
• A company shall be unable to pay its debts :

A If a creditor to whom the company owes more than Rs 500

then due, has served on the co. a demand in writing and the
co. has within 3 weeks thereafter neglected to pay or secure
or compound the sum to the reasonable satisfaction of the
Creditor.

B. if an execution or other process issued on a decree or order

of any court in favour of Creditor has not been satisfied by the
Company.
C . If is proved to the satisfaction of the court that the company
is unable to pay its debts including contingent and prospective
liabilities.
13. Compulsory winding up(cont)
• (f) if the Court is of the opinion that it is just and equitable that
the company should be wound up.
• Who may petition ?

• Date of commencement of winding up - date on which the

petition is presented to court.

• Hearing of Petition. - notices issued to all concerned parties

• Intimation to Official Liquidator /ROC

• Consequences of Winding up order

• Statement of affairs to be made to the liquidator

• Order of Dissolution by the Court -thereafter the company has
no existence.
 14. Voluntary winding up
• Voluntary Winding up - Winding up by the members or
creditors without any intervention of the Court is called
voluntary winding up.

• As per section 484, a company may be wound up

voluntarily
• by Ordinary resolution or by Special resolution.
• -----------------------------------------------------------------------------
-
• By passing an ordinary resolution in general
meeting
a. where either the time fixed by the articles for the duration of
the company has expired OR
b. the event specified in the Articles has occurred on which the
company is to be dissolved.
 15. Voluntary winding up(cont)
• In any other case, the company may
resolve to be wound up voluntarily by
passing a special resolution in general
body meeting of shareholders.

• A voluntary winding up is deemed to commence from

the time the resolution for voluntary winding up is
passed.

• Consequences of Voluntary Winding-up

 16.Types of voluntary winding up
• Types of Voluntary Winding up - Voluntary winding up may
be of two types, namely,

a) Members’ voluntary winding up ;

b) Creditors’ voluntary winding up.

• Members’ Voluntary Winding up - Members’ voluntary winding

up is possible only in case of solvent companies.

• DECLARATION OF SOLVENCY --
• In order to be effective, this declaration must be made within 5 weeks
immediately preceding the date of passing of the winding up resolution by
the members;
 17. Creditors Voluntary
Winding Up
• Creditors’ voluntary winding up -

• Where the Board of directors does not file a declaration

as to solvency of the company, the voluntary winding up
is called ‘ the Creditors ‘ voluntary winding up.

• - if the members and creditors nominate two different persons as

liquidators, creditors’ nominee shall become the liquaditor of the
company.

• - Besides, in the case of creditors’ winding up, if the creditors so wish , a ‘

committee of inspection ‘ may be appointed to work along with the
liquidator(s).
 18. Voluntary winding up under
supervision of the court

• - A voluntary winding up may be

• effected under supervision of the Court where
an application to that effect is made by a
creditor or
• a contributory or
• the company or
• the liquidator and
the Court makes an order that the voluntary
winding up should continue subject to the
supervision of the Court.
 .
• Such an order is passed by the Court where
• (i) the resolution for winding up was obtained by
fraud, or
• (ii) the rules relating to the winding up order have not
been observed, or
• (iii) the liquidator is prejudical or is negligent in
collecting the assets.

• The Court is also empowered under the section 527

to make an order for compulsory winding up
superseding the order of winding up under its
supervision.
 20 Contributory
• Contributory - the term ‘ contributory ‘ is
defined under section 428 to mean every
person liable to contribute to the assets of a
company in the event of its being wound up.
• The expression includes the holder of any
shares which are fully paid up.

• A past member shall however be not liable to

contribute if he ceased to be a member for one year
or more before the commencement of the winding
up.