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Mergers, Amalgamation, Acquisitions and Takeovers

In external expansion, a firm acquires a running business and grows overnight through corporatecombination in the form of mergers, acquisitions, amalgamations and takeovers which have nowbecome important features of corporate restructuring. They enhance competition, cause breaking

of trade barriers, free flow of capital across countries and globalisation of businesses. These arestrategic decisions taken for maximisation of a company's growth by enhancing its productionand marketing operations and are being used in a wide array of fields such as IT, telecom, BPOand in traditional businesses to gain strength, expand customer base, cut competition or enter intoa new market or product segment.In India, M&A deals valuing USD 33.83 bn were executed during first quarter of financial year2010 with a growth of about 257% over corresponding quarter last year, which registered dealsworth USD 9.49 billion (April June 2009).The number of M&A deals recorded an increase to60 from 43 wrt the preceding quarter. The cross border outbound, domestic and inbound M & Adeals occupied a 48.55%, 39.43% and 12.02% share with 28, 27 and 5 number of deals respectively

Mergers and Amalgamations

A merger is a combination of two or more businesses into one business when firms, often ofsimilar size, agree to move ahead and exist as a single new company. Its referred to as a "mergerof equals." Mergers are mostly financed by a stock swap. Both companies surrender their stocksand stock of the new company is issued as a replacement. A single administrative section then

manages the new union. Amalgamation signifies blending of two or more existing companies intoone company, the blended companies losing their identities and forming themselves into aseparate legal identity. Merger is restricted to a case where the assets and liabilities of thecompanies get vested in another company, the company which is merged losing its identity andits shareholders becoming shareholders of the other company. On the other hand, amalgamation

is an arrangement, whereby the assets and liabilities of two or more companies become vested inanother company (which may or may not be one of the original companies) and which wouldhave as its shareholders substantially, all the shareholders of the amalgamating companies

Laws in India use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section

2(1A)] defines amalgamation as the merger of one or more companies with another or the

merger of two or more companies to form a new company, in such a way that all assets and

liabilities of the amalgamating companies become assets and liabilities of the amalgamated

company and shareholders not less than nine-tenths in value of the shares in the amalgamating

company or companies become shareholders of the amalgamated company.Mergers or

amalgamations may take two forms:-Merger through Absorption:- An absorption is a

combination of two or more companies into an 'existing company'For example, absorption of

Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd. (TCL). TCL survived after merger while TFL

ceased to exist and transferred its assets, liabilities and shares to TCL. Merger through

Consolidation:- 2 or more companies consolidate into a 'new company' and a new entity is

created. For e.g, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian

Software Company Ltd, Indian Reprographics Ltd into an entirely new company called HCLtd. .

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Besides, there are three major types of mergers:- Horizontal merger: Examples are formation of

Brook Bond Lipton India Ltd. through the merger of Lipton India and Brook Bond, merger of

Bankof Mathura with ICICI BankVertical merger: Reliance Gateway, a wholly owned subsidy

of Reliance Infocomm signed merged with the Flag Telecom Group. Conglomerate merger:

L&T and Voltas Ltd are examples of such mergers.

In 2010, the biggest deal was done by Reliance Communication which merged its telecom

tower business with GTL infrastructure Ltd for USD 11 billion. Dabur completed merger of

Fem Care Pharma with itself in June 2010.The amalgamation ofSangli Bank Limited with

ICICI Bank Limited occurred in 2007. BASF India Ltd has announced in September 2010,

that it has approved the Scheme of Amalgamation ofBASF Coatings (India) Pvt. Ltd., BASF

Construction Chemicals (India) Pvt. Ltd. and BASF Polyurethanes India Ltd., being the

Transferor Companies with BASF India Ltd., the Transferee Company.Global Trust Bank Ltd.had merged with the Oriental Bank of Commerce in 2004.

Acquisitions and Takeovers

An acquisition may be defined as an act of acquiring effective control by one company overassets or management of another company without any combination of companies. Thus, in anacquisition two or more companies may remain independent, separate legal entities, but theremay be a change in control of the companies. When an acquisition is 'forced' or 'unwilling', it iscalled a takeover. In an unwilling acquisition, the management of 'target' company wouldoppose a move of being taken over. But, when managements of acquiring and target companiesmutually and willingly agree for the takeover, it is called acquisition or friendly takeover. Underthe Monopolies and Restrictive Practices Act, takeover meant acquisition of not less than 25%of the voting power in a company. While in the Companies Act (Section 372), a company's

investment in the shares of another company in excess of 10% of the subscribed capital canresult in takeovers. These do not entail full legal control.

The Tata Group is known for its acquisition spree, be it Tata Teas one of the oldestacquisitions of UK-based Tetley Tea, at $400 million as early as Feb 2000; or Tata Coffees buy-out of Americas best selling whole bean coffee brand Eight OClock Coffee at $220million in June 2006. Tata Teleservices took overHughes Telecom in June 2002. Tata Motorsacquired Daewoo at $100 million in March 2004. Tata Motors also acquired the businesses oftwo iconic British brands Jaguar and Land Rover from Ford Motors for a net considerationof $2.3 billion in June 2008, with the aim to spread its footprint globally.

In 2010, Bharti Airtel acquired Kuwait based Zain telecoms African business for USD 10.7billion. Reliance Industries acquired Infotelbroadband for USD 1 Billion. The biggest deal inPharmaceutical sector was the acquisition of the generic drug unit ofPiramal Healthcare byUSA based drug maker Abbot Laboratories for USD 3720 mn. In the Banking, FinancialServices and Insurance sector, biggest deal was cut by Hinduja group, when it acquiredLuxembourg based KBL European private bankers SA for USD 1.69 billion

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