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Trends in Mergers and Acquisitions in Past Five Years in Indian Corporate Sector
Trends in Mergers and Acquisitions in Past Five Years in Indian Corporate Sector
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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
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• Mergers and acquisitions
• 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
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