Mergers and Acquisitions- NALSAR University of Law- Surabhi Rajpal

CORPORATE RESTRUCTURING:
MERGERS AND ACQUISITIONS
An Introduction

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Corporate Restructuring
Corporate Restructuring has been defined as a set of

discrete decisive measures taken in order to increase the

competitiveness of the enterprise and thereby to enhance
its value.
Crum and Goldberg, Restructuring and Managing the Enterprise in
Transition, EDI Learning Resource Series, The World Bank, 1998

A few examples:
Financial Restructuring
Investment/ Ownership Restructuring
Asset Restructuring
Expansion
Divestment

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Corporate
Restructurings

Mergers

Scheme of
Amalgamation
(S.391-394 route)

Acquisitions

Compulsory
Merger

Acquisition of
assets

Business
Acquisition

Divestments

Acquisition of
shares, voting
rights or control

Demerger

Spin off

Split off

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Mergers

and acquisitions- species of

corporate restructuring.
Examples of other kinds of corporate
restructuringFinancial
restructuring,
compromise or arrangement within the
meaning of Ss. 391-393 of CA, 1956, sale
of an undertaking, divestment, demerger,
etc.
Mergers and acquisitions- means of
inorganic growth

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Mergers and Takeovers: meaning and definition

Mergers

and takeovers The terms may be

synonymously
used
in
economic
parlance
depending upon the economic effect of a
transaction.

e.g. Where two companies merge, the entire undertaking

of the transferor company vests in the transferee
company, and the former undergoes dissolution without
winding up. The shareholders in the former receive
shares in the latter.
A similar economic effect may be produced by acquiring
shares in the target company and issuing shares of the
acquiring company to the shareholders of the target
company as consideration.

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

But the terms are distinctly used and connote

a specific meaning in the legal sense

Merger- Fusion of two or more companies into one,

whereby the assets of the former become vested in the

latter and the shareholders of the merging companies
become shareholders of the resulting entity.
Merger of Co. A & Co. B
Co. B
Merger of Co. A & Co. B
Co. C
Takeover- a transaction or series of transactions
whereby a person (individual, group of individuals or
company) acquires control over the assets of a company,
either directly by becoming owner of those assets, or
indirectly by obtaining control of the management of the
company.
Rabinowitz (Ed.), Weinberg and Blank on Takeovers and Mergers, London
Sweet & Maxwell, Fifth Edition and Release 37: April 2008, at para 1-1002

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Causes of M&A
A quicker way of expansion (in size or activities) of a business

vis--vis internal or organic growth

Assets at a discount/ perceived undervaluation of a
business (due to numerous reasons such as inefficient
management, share price not adequately reflecting the true
value of separable net assets, low-profit company owning
assets with a high realisable value, etc.)
Synergy (2+2 = 5 effect)- due to various factors such as
economies of scale, vertical integration, avoiding duplication
of certain activities, etc.
Diversification
Entry in a new market
Elimination of competition by acquiring a competitor
Tax benefits (e.g. S.72A of Income Tax Act 1961)
Managerial motives

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Forms of M&A
Classification based on form of transaction
1. Asset acquisition - legal transfer of assets from the

target to the acquirer for consideration in the form of cash

or shares of the acquirer- compare with merger- requires
exhaustive listing of assets and liabilities being
transferred.
2. Business acquisition- sale and purchase of a business
undertaking as a going concern- all assets and liabilities
associated with the undertaking are transferred to the
acquirer- express agreement required to exclude the
transfer of any assets or liabilities
ex. Slump sale [S. 2 (42C) of Income Tax Act, 1961], sale of
an undertaking

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

3. Merger/ Amalgamations [Ss. 391-394 of

CA, 1956 ~ Ss. 230-232 of CA, 2013]- by

the order of court- transfer of all assets
and liabilities of the transferor company
to the transferee company- dissolution
without winding up of the transferor
company
4. Takeovers- Acquisition of shares, voting
rights or control

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Classification based on economic consequences-

Horizontal merger or takeover

ii. Vertical merger or takeover
iii. Congeneric Merger
iv. Conglomerate merger or takeover
i.

Classification based on co-operation between boards of

directors of the concerned companiesi. Friendly or agreed takeover

ii. Uncontested takeover
iii. Hostile/ Defended takeover
iv. Competitive takeovers

Mergers and Acquisitions- NALSAR University of LawSurabhi Rajpal

Classification based on form of financing a transaction:

i.
Leveraged buy out (LBO)- A consortium of investors generally
led by a buy out specialist firm form a SPV to acquire control of
the target with borrowed funds which would be repaid using the
target companys cash flow or by selling its assets.
ii.
Management buy out (MBO)- A type of LBO in which
managers of a company acquire the companys business with
the help of outside financiers. Issues of conflict of interest
would arise.
iii. Institutional buy out- A type of LBO where an institutional
investor acquires a business directly from the seller.
iv. Management buy in (MBI)- Sale of a business to a new team
of managers who also take a majority stake in the target
company.