A General Analysis on Mergers And Acquisitions

Introduction

Corporate Structural changes consist of business combinations in the shape of mergers, amalgamations and takeovers as its key attribute. Merger and acquisitions have helped in the growth of the contemporary corporate sector worldwide. In recent years, in India also the concept of Mergers and Acquisitions have started developing. Procedures for Mergers and Acquisitions are frequently taken into consideration in order to restructure the several trade organizations. To create global consumer interference along with the profit from it, is now the primary objective of majority of the markets. Due to the increased implementation of the LPG policy i.e. Liberalization, Privatization and Globalization across the world the Merger and Acquisition have evolved into a comprehensive tool for entering emerging markets, increasing access to research and development, gaining access to assets that enable businesses to compete on a global scale and gaining knowledge.

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What is Merger and Acquisition?

Merger can be defined as the joining together completely of two or more already existing independent business entities. When the two or more companies discontinues and combines their assets as well as the liabilities into the another company that has been newly formed, that is when a merger is truly said to have been taken place in the legal sense. Therefore, a merger requires the starting of new business entity.

Acquisition can be defined as the process of gaining effective and efficient control by one of the business entities over the asset, liability and the management of the another business entity without the need of any kind of permutation of the entities. Except being a mere modification in the authority of the entities, otherwise the business entities continue to have the statues of the separate legal entity and stay independent in case of the acquisition.

Difference between merger and Acquisition

Legal Framework

In our country various legal framework deals with the mergers and acquisitions. In order to safeguard the shareholder’s interest, the laws basically try to make the merger and acquisition process more explicit.

• Companies Act, 2013

The primary and the most important piece of legislation that controls every company that is being registered in the nation is the Companies Act. Any activity whether its merger & acquisition or Amalgamation or any kind of takeover everything has to adhere to Companies Act’s requirements. Merger & Acquisition has been mentioned from Section 230 to 234 of Chapter XV of the Companies Act, 2013.

• Securities Laws

In our country, securities market is basically run and controlled by SEBI i.e. The Securities and Exchange Board of India. In accordance with SEBI, Merger and Acquisition transaction are also governed by the SEBI under the “Substantial Acquisition of Shares and Takeovers (Second Amendment) Regulation, 2018”.

• Competition Act, 2002

Merger & Acquisition would subject to The Competition Law, 2002 as well. Moreover, the market should not be turned into a monopoly by the merger and the acquisition, this should be make sure by the competition authorities.

• Income Tax Act, 1961

Merger and Acquisition are also governed by the Income Tax Act, 1961. It would also include any tax rules that would be relevant to a specific category of law.

• Foreign Exchange and Management Act, 1999

The provisions relating to the Merger and the Acquisitions are also governed by the Foreign Exchange and Management Act of 1999.  In the event of cross – border merger provisions pertaining to this act would be applicable. Only with the permission of this law, the transaction of capital instruments from one nation to another can be taken place.

 Types of Merger & Acquisition

Types of merger are as follows:

• Horizontal Merger

It can be defined as the merger of two or more businesses that sell the same goods or services.

• Vertical Merger

It can be defined as the merger between the businesses that are involved in different stages or production and distribution.

• Conglomerate Merger

It can be defined as the merger between the businesses that are totally unrelated to each other.

• Forward Merger

It can be defined as the merger when the business chooses to combine with its clients.

• Reverse Merger

It can be defined as the merger when the raw material suppliers are being taken into consideration with which company can merge.

Types of Acquisition are as follows:

• Share Sale

It is a type of private acquisition where all or the specific number of target company’s shares is being taken by the purchasing company.

• Asset Sale

It is almost similar to the share sale but the only difference between them is that the purchasing company acquires only specific assets of the target company in the asset sale.

Advantages of Merger and Acquisition

Although much depends on how the deal is executed, but the main benefit of Mergers and Acquisitions is that they offer a successful base to the business entities to expand. Since there is already a well-established base it aids in improving the performance of the entity by lowering the market competition. Certain benefits can be listed as:

• Gaining recognition and global brands
• Creating new product combinations
• Gaining access to new markets
• Enhancing operating markets and productivity

 Case Study

• Vodafone Idea Merger

Both the companies i.e. Vodafone and Idea were up against the fierce competition with the two companies – Jio by Reliance and Bharti Airtel. Due, to which both were facing a lot of struggle in the telecom industry. Merger benefited both the companies. As a result, Vodafone holding 45% shares and Ide holding 26% shares in the merged entity respectively. The business was further started with a new company name “Vi”.

• Myntra being acquired by Flipkart

Since Myntra was having 30% shares in the market and being the part of the same industry both the companies in order to beat their competitors like Amazon decided to do so. But despite the acquisition of Myntra by flipkart and flipkart having 100% ownership over it, Myntra still operates as a separate entity in the market.

• Tata and Corus Steel

Tata Steel in 2007 purchased Corus which is a European based steel company for 12.02 billion dollars. The deal basically helped Tata to make its name in the European market as well as the Indian Market. As a result, the company rose to the position of fifth largest steel producer globally.

• Acquisition of Ranbaxy by Sun – Pharmaceuticals

Ranbaxy was purchased by Sun – Pharmaceuticals from a Japanese Pharmaceutical company named as Daiichi Sankyo, who had taken it in 2008. Since after this largest acquisition of the country had occurred, it proved to be beneficial for Sun – Pharmaceuticals as there its revenue had increased. Following the acquisition, Ranbaxy got the 14% stake in the company.

Conclusion

From the above analysis we can say that both the concept i.e. the Merger & Acquisition are different in terms of ownership, parties involved and the interest that will be acquired. But for any kind of strategy for business, Mergers & Acquisitions are the crucial element and also regarded as the significant change agents. It is a well-known fact that as in today’s world the industries are rapidly changing only the companies that are most creative and adaptable will survive. That’s why choosing Merger & Acquisition is a very crucial decision for any business entity. We can say that merger & Acquisition is a kind of an arrange marriage once it is completed, partners will require time to get to know each other and work things out but majority of time they will provide with the fruitful outcome.

Author: Jhalak Singhal pursuing B.B.A LLB (Hons.) from University of Petroleum & Energy Studies, Dehradun, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.