Trends in mergers and acquisitions in past five

years in Indian Corporate Sector

 Acquisitions
• A firm can be acquired by another firm or individual(s)
purchasing voting shares of the firm’s stock
• Tender offer – public offer to buy shares
• Stock acquisition
– No stockholder vote required
– Can deal directly with stockholders, even if management is unfriendly
– May be delayed if some target shareholders hold out for more money
– complete absorption requires a merger
• Classifications
– Horizontal – both firms are in the same industry
– Vertical – firms are in different stages of the production process
– Conglomerate – firms are unrelated

25-2
 Merger
• Merger
– One firm is acquired by another
– Acquiring firm retains name and acquired firm
ceases to exist
– Advantage – legally simple
– Disadvantage – must be approved by stockholders
of both firms

25-3
• Mergers and acquisitions

• 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.
 Laws dealing with M&A
• Apart from SEBI Substantial Acquisition And Takeover of shares ,the other laws
are
• The Companies Act , 1956
• The Competition Act ,2002
• Foreign Exchange Management Act,1999
• The Indian Income Tax Act (ITA), 1961
• Mandatory permission by the courts
The Companies Act , 1956
• Legal Procedure For Bringing About Merger Of Companies
(1) Examination of object clauses:
The MOA of both the companies should be examined to check the power to amalgamate is available. Further, the object
clause of the merging company should permit it to carry on the business of the merged company. If such clauses do not
exist, necessary approvals of the share holders, board of directors, and company law board are required.
(2) Intimation to stock exchanges:
The stock exchanges where merging and merged companies are listed should be informed about the merger proposal. From
time to time, copies of all notices, resolutions, and orders should be mailed to the concerned stock exchanges.
(3) Approval of the draft merger proposal by the respective boards:
The draft merger proposal should be approved by the respective BOD’s. The board of each company should pass a
resolution authorizing its directors/executives to pursue the matter further.
(4) Application to high courts:
Once the drafts of merger proposal is approved by the respective boards, each company should make an application to the
high court of the state where its registered office is situated so that it can convene the meetings of share holders and
creditors for passing the merger proposal.
(5) Dispatch of notice to share holders and creditors:
In order to convene the meetings of share holders and creditors, a notice and an explanatory statement of the meeting, as
approved by the high court, should be dispatched by each company to its shareholders and creditors so that they get 21
days advance intimation. The notice of the meetings should also be published in two news papers.
(6) Holding of meetings of share holders and creditors:
A meeting of share holders should be held by each company for passing the scheme of mergers at least 75% of shareholders
who vote either in person or by proxy must approve the scheme of merger. Same applies to creditors also.
(7) Petition to High Court for confirmation and passing of HC orders:
Once the mergers scheme is passed by the share holders and creditors, the companies involved in the merger should
present a petition to the HC for confirming the scheme of merger. A notice about the same has to be published in 2
newspapers.
(8) Filing the order with the registrar:
Certified true copies of the high court order must be filed with the registrar of companies within the time limit specified by
the court.
(9) Transfer of assets and liabilities:
After the final orders have been passed by both the HC’s, all the assets and liabilities of the merged company will have to be
transferred to the merging company.
(10) Issue of shares and debentures:
The merging company, after fulfilling the provisions of the law, should issue shares and debentures of the merging company.
The new shares and debentures so issued will then be listed on the stock exchange.
• (II) The Competition Act ,2002
Following provisions of the Competition Act, 2002 deals with mergers of the
company:-
(1) Section 5 of the Competition Act, 2002 deals with “Combinations” which
defines combination by reference to assets and turnover
(a) exclusively in India and
(b) in India and outside India.
• For example, an Indian company with turnover of Rs. 3000 crores cannot acquire
another Indian company without prior notification and approval of the
Competition Commission.
• On the other hand, a foreign company with turnover outside India of more than
USD 1.5 billion (or in excess of Rs. 4500 crores) may acquire a company in India
with sales just short of Rs. 1500 crores without any notification to (or approval of)
the Competition Commission being required.

• Section 6 of the Competition Act, 2002 states that, no person or enterprise shall
enter into a combination which causes or is likely to cause an appreciable adverse
effect on competition within the relevant market in India and such a combination
shall be void
• Foreign Exchange Management Act,1999
The foreign exchange laws relating to issuance and allotment of shares to foreign
entities are contained in The Foreign Exchange Management (Transfer or Issue of
Security by a person residing out of India) Regulation, 2000 issued by RBI vide GSR
no. 406(E) dated 3rd May, 2000. These regulations provide general guidelines on
issuance of shares or securities by an Indian entity to a person residing outside
India or recording in its books any transfer of security from or to such person. RBI
has issued detailed guidelines on foreign investment in India vide “Foreign Direct
Investment Scheme” contained in Schedule 1 of said regulation.
• The Indian Income Tax Act (ITA), 1961
Merger has not been defined under the ITA but has been covered under the term
'amalgamation' as defined in section 2(1B) of the Act. To encourage restructuring, merger and
demerger has been given a special treatment in the Income-tax Act since the beginning. The
Finance Act, 1999 clarified many issues relating to Business Reorganizations thereby
facilitating and making business restructuring tax neutral. As per Finance Minister this has
been done to accelerate internal liberalization. Certain provisions applicable to
mergers/demergers are as under: Definition of Amalgamation/Merger — Section 2(1B).
Amalgamation means merger of either one or more companies with another company or
merger of two or more companies to form one company in such a manner that:
(1) All the properties and liabilities of the transferor company/companies become the
properties and liabilities of Transferee Company.
(2) Shareholders holding not less than 75% of the value of shares in the transferor company
(other than shares which are held by, or by a nominee for, the transferee company or its
subsidiaries) become shareholders of the transferee company. section 2(1B) relating to
merger are fulfilled:
(1) Taxability in the hands of Transferee Company — Section 47(vi) & section 47
(a) The transfer of shares by the shareholders of the transferor company in lieu of shares of
the transferee company on merger is not regarded as transfer and hence gains arising from
the same are not chargeable to tax in the hands of the shareholders of the transferee
company. [Section 47(vii)]
(b) In case of merger, cost of acquisition of shares of the transferee company, which were
acquired in pursuant to merger will be the cost incurred for acquiring the shares of the
transferor company. [Section 49(2)]
• VII) Stamp duty
Stamp act varies from state to State. As per
Bombay Stamp Act, conveyance includes an
order in respect of amalgamation; by which
property is transferred to or vested in any
other person.
• As per this Act, rate of stamp duty is 10 per
cent.
• Intellectual Property Due Diligence In
Mergers And Acquisitions
• consideration of payment is in the form of:
(i) Equity shares in the transferee company,
(ii) Debentures in the transferee company,
(iii) Cash, or
(iv) A mix of the above mode
 India Inc. Goes Global

 Tata Steel acquired UK based

Corus for $ 8 billion.
 Suzlon Energy Ltd acquired
German firm Repower Systems AG
for $ 1.7 billion.
 United Spirits bought Scotch
whisky distiller Whyte & Mackay
for US$ 1.11 billion
 Hindalco acquired Novelis for
$ 6 billion
India goes global
 TATA Chemical acquires US based Soda Ash Maker General
Industrial Products for $ 1 billion
 Indian shipping company Great Offshore acquires UK
based Sea Dragon for US$ 1.4 billion
 Essar Energy acquires 50% stake in Kenya Petroleum
refineries ltd.
 Banswara Syntex to acquire France firm Carreman Michel
Thierry for around US$ 125 million
Graphical representation of Indian
outbound deals since 2000.
Source:
IBEF
Inbound Transactions
 Sistema, Russian Joint Stock
Company’s acquisition of 74%
stake in Shyam Telelink –
Telecommunications
 French banking major BNP
Paribas’s acquisition of 45% stake
in financial services firm Sundaram
Home Finance for $45.81 million
 Standard Chartered Bank bought
49% stake for $34.19 million in UTI
Securities and Interpublic Group
hiked its stake in Lintas India to
100% for $100 million
Fursa Mauritius’s acquisition of 42.63%
equity in Gayatri Starchkem
UBS Global Management’s Acquisition
of Standard Chartered Asset
Management Company for $ 117.78
Million
EMC Corporations Acquisition of Valyd
Software Pvt. Ltd.
Orkla’s Acquisition of MTR foods for $
100 Million
STRATEGIC RATIONALE
The strategic rationale for an acquisition that creates
value are of types:

> Improving the performance of the target company.

>Removing excess capacity from an industry,
>Creating market access for products, acquiring skills or
Technologies more quickly or at lower cost than they
could be built in-house,
FOR LESS SUCCESSFUL DEALS, THE STRATEGIC
RATIONALES—
SUCH AS PURSUING INTERNATIONAL SCALE,
FILLING PORTFOLIO GAPS,
OR BUILDING A THIRD LEG OF THE PORTFOLIO—
TEND TO BE VAGUE.