Law of Corporate Management and Governance (CRL 111)

Topic:

Merger, Acquisitions and Amalgamations

Submitted to: -

Dr. Navjeet Sidhu Kundal

Submitted by: -

(Gavish Raina) (02617747024) (LLM-Corporate Law)

 INTRODUCTION

The assignment is focused on understanding the activity of mergers and acquisitions (M&A’s),
bringing out the various forms of this activity. After the general understanding of M&A’s, the
module goes into the scope of the term ‘combinations’ as contained in the Competition
Act’2002. The first step in regulation of combinations is to find out whether a particular merger
or acquisition fulfils the criteria requiring pre-notification and approval of the Competition
Commission of India. Accordingly the assignment discusses the aspect of notifiability of a
combination in accordance with the provisions.1

The most significant goal for every business firm is to achieve growth. It is possible for a firm to
grow organically or inorganically in the form of mergers and acquisitions. While growth is a
positive virtue and leads to a number of efficiencies, it may also cause an increase in market
power of a firm giving it the ability to indulge in anticompetitive practices. This negative impact
of growth underscores the need for regulation. The conduct of a firm which has grown
organically or internally is regulated under the provisions of section 4 of the Competition Act,
2002 relating to abuse of dominance. The instances of inorganic growth through the route of
mergers and acquisitions (M&As) are regulated ex-ante at the time of entering into the
transaction. The unit is focused on an understanding of the regulatory philosophy and the basic
concepts of M&A activity and the discussions are centred on the basics of mergers and
acquisitions including, the merits and demerits of merger activity, their impact on market
competition and the need for regulation.

What is Mergers and Acquisition?

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M&A are used interchangeably but have different definitions; they refer to the amalgamation of
businesses. The definition of a merger is the joining of two or more companies to create a much
larger business. While the Competition Act of 2002's Section 2(a)2 defines acquisitions as either
directly or indirectly purchasing or agreeing to buy (a) any enterprise's shares, voting rights, or
assets, or (b) any enterprise's control over management or control over its assets.

The term "M&A" refers to the area of corporate finance, management, and corporate strategy
that deals with the buying, selling, and combining of different companies that can finance, aid, or
help a growing entity in a given industry grow rapidly without the need to create another
business entity. It is frequently noted that mergers and acquisitions are the only corporate
competitive strategy to maintain a company in the market.

A smaller firm's business is absorbed when a giant corporation buys the smaller company, a
process known as an acquisition. On the other hand, a merger combines two firms of roughly the
same size to continue ahead as one new organisation rather than continuing to be owned and run
independently.

Benefits of M&A

M&A has significant advantages:

• By removing unnecessary expenses, revenue could rise.

• Future market share growth occurs either beyond international boundaries or due to
devoted customers prepared to consider new items created due to the merger or
acquisition.

• Increased profit margins and innovation might result from less competition.

• The businesses get access to fresh assets and human capital previously owned by their
rival.

• The merged assets and decreased expenses might lead to an increase in stock values.

RECENT M&A IN INDIA

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The Largest M&A in recent years in India

♦ Zee Entertainment – Sony India Merger

Zee Entertainment Enterprises Limited and Sony Pictures Networks India, India's most
prominent media corporations, have agreed to merge for several billions of dollars. The deal can
potentially make the combined company one of the biggest and most coveted in the nation. Both
businesses are anticipated to gain from the combined firm and the synergies that result from their
combination, which will not only hasten corporate growth but also enable shareholders to partake
in its future success.

♦ Vodafone and Idea Merger

Reliance Jio's arrival into the Indian market and the 2G Scam drove several existing
telecommunications firms to the verge of bankruptcy. A pricing war in the telecom industry
resulted from Reliance Jio's low-cost plans, which had a significant impact. The two largest
businesses at the time, Vodafone India and Idea Cellular Limited, battled as the telecom industry
grew more competitive. Both of these businesses decided to unite into one. It was a win-win
situation for Vodafone and Idea. The combination of Vodafone and Idea was completed with the
debut of their new corporate brand, "Vi."

♦ Flipkart and eBay India Merger

eBay India and e-commerce giant Flipkart combined in 2017. The merger was intended to
provide Flipkart consumers with additional product options by giving them access to eBay's
extensive worldwide inventory while giving eBay buyers access to a more distinctive Indian
inventory from Flipkart vendors.

♦ Bank of Baroda and, Vijaya Bank and Dena Bank Merge

In 2019, Dena Bank and Vijaya Bank merged with the Bank of Baroda. In December 2020, the
Bank of Baroda announced that it had successfully merged 3,898 Vijaya Bank and Dena Bank
branches.

What is an Amalgamation?
An amalgamation is the combination of two or more companies into an entirely new entity.
Amalgamations are distinct from acquisitions in that none of the companies involved in the
transaction survive as a legal entity. Instead, a completely new entity, with the combined
assets and liabilities of the former companies, is born.

The term amalgamation has generally fallen out of popular use in the United States, being
replaced with terms like merger or consolidation, with which it can be synonymous. However, it
is still commonly used in certain countries, such as India.

Advantages and Disadvantages of Amalgamation of Companies

Advantages

 There is no longer any competition between the companies

 The number of R&D facilities has risen

 It is possible to lower operating costs

 The price stability of items is preserved

Disadvantages

 Amalgamation could result in the abolition of healthy competition

 People may be laid off

 There could be more debt to pay off

 Combining businesses can result in a market monopoly, which isn’t always good

 The former company’s goodwill and identity can be lost

How Amalgamations Work?

Amalgamations typically happen between two (or more) companies engaged in the same line of
business or that share some similarity in their operations. Usually, the process involves a larger
entity, called a "transferee" company, absorbing one or smaller "transferor" companies before
creating the new entity.

The terms of an amalgamation are finalized by the board of directors of each company involved.
The plan is prepared and submitted to regulators for approval. In India, for example, that
authority resides in the High Court and Securities and Exchange Board of India (SEBI).

Indian tax law defines "amalgamation" somewhat broadly as "the merger of one or more
companies with another company or the merger of two or more companies to form one
company." It refers to the merging companies as "the amalgamating company or companies,"
while the company they merge with or which is newly formed as a result of the merger is "the
amalgamated company.

Recent Amalgamation of Companies

♦ Zomato's Acquisition of Blinkit

Zomato plans to purchase the rapid commerce company Blinkit, formerly known as Grofers, in
an all-stock deal to enter the fast-market segment of distributing groceries online. As a result of
this deal, Zomato will have access to Blinkit's 400 dark shops. Additionally, the purchase of dark
establishments fits nicely with the recently released software "Zomato Instant" from the online
food aggregators, which guarantees meal delivery in 10 minutes.

♦ Wipro Acquisition of Capco

Capco, a UK-based provider of IT consulting services, was purchased by Wipro in March 2021.
With this purchase, Wipro can strengthen its position in the banking, financial services, and
insurance industry, which continues to be the most significant and significant industry vertical
for Indian IT service providers. Capco gives Wipro access to its loyal clients and the chance to
provide Capco offerings to their combined clientele, integrated with the present

♦ HDFC Life's Acquisition of Exide Life Insurance

The Life Insurance division of mortgage principal HDFC Life purchased all of Exide Life
Insurance Company's (the Bengaluru-based company's) shares from Exide Industries. With this
acquisition, HDFC Life wants to expand its business in tier II and tier III locations, mainly in
south and east India.

♦ Walmart's Acquisition of Flipkart

Flipkart's acquisition by Walmart signalled the company's entry into the Indian market. Walmart
outbid Amazon in a bidding war and acquired a 77% share in Flipkart. Because of this, Walmart
was able to compete with Amazon in one of its core areas. As a result, Flipkart's logistics and
supply chain network expanded.

♦ Tata Group Acquisition of Air India

After successfully submitting a proposal for a 100% share in Air India, the Tata Group bought
Air India through its subsidiary Talace in January 2022. Given that the Tata company also has a
controlling stake in AirAsia India and Vistara, a joint venture with Singapore Airlines, this
acquisition may be a component of their overall aviation business plan.

Companies Act, 2013- Section 230-240- Compromise, Arrangement

and Amalgamation3

Section 230- Compromise & Arrangement

 Under this Section an applicant (member, creditor, company or liquidator of company

depending on the situation of the company.) to enter into a compromise, arrangement
or amalgamation (including takeover) has to give an application under 230(1) to
National Company Law Tribunal (NCLT).
 This application has to be given along with – Material facts, reduction of share capital(
if any), consent of creditors (75%), and other disclosures
 As soon as NCLT receives the application it will immediately order a meeting.
 The notice of the meeting will go to – all the members, creditors and debenture
holders.

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  Additionally the notice has to be published on the website of the company and an
advertisement in the newspaper (1 English newspaper and 1 vernacular newspaper)
has to be given.
 If the company is a listed company the notice has to be given to Securities Exchange
Board of India (SEBI) so that SEBI notify the same under its website.
 Notice has to be given to some authorities like – The central Government, Income Tax
Authority, Reserve Bank of India RBI, Competition Commission of India (CCI) for
their representations or objections within 30 days.
 If the Authorities do not give in their replies within 30 days, the company will assume
that there is no objection.
 After the order, the meeting shall be conducted and there shall be proper voting at the
meeting which must conclude within the period of 1 month. Voting at the meeting can
be done via- voters themselves, Proxy, postal ballet and E- Voting.
 The Resolution at the meeting shall be approved and passed by 75% majority.
 Any person can object to the scheme provided if a shareholder has minimum 10% of
share capital or a creditor has 5% outstanding debt.
 Once the resolution is approved the scheme goes back to the NCLT for passing a
Final order along with ancillary orders. This final order has to be filled with ROC
within 30 days.

Section 231- Power of Tribunal to enforce compromise or arrangement under

section 230

 The tribunal has the power to oversee the implementation of the compromise or
arrangement.
 It has power to give further directions.
 If the tribunal feels that the amalgamation is not taking place according to the terms
and conditions ordered by the tribunal or are impossible or impractical to follow the
order to do so then it can even order winding up of the company.

Section 232 – Merger and amalgamation of companies

 Section 230 talks about compromise or arrangement( Internal reconstruction) , but if

there is a compromise or arrangement that also involves a merger or an amalgamation
( External Reconstruction) then both Section 230 and 232 will apply to such
companies.
 This section is a continuation of section 230 for merging or amalgamating companies
where in there are some additional requirements to be followed.
  Along with the notice of the meeting in section 230, the following must also be given-
Draft scheme of merger and amalgamation (M/A) ,report of effect or impact of such
M/A on each class of shareholders, report of valuation and other disclosures.
 While passing the final order, tribunal can make provisions for other required matters.

Section 233- Merger or Amalgamation of certain companies

 ‘Certain companies’ under this section are – 2 or more small companies

merging(private companies having paid-up capital of less than INR 100 million and
turnover of less than INR 1 billion per last audited financial statements), holding and
its wholly owned subsidiary merging or any other such class of companies as may be
prescribed.
 These companies will merge according to section 233 not 232 which is also called
Fast Track Mergers. Such companies get an easier route to merge.
 Steps involve in this type of merger are-
 Step 1- Invite objections and suggestions from Registrar of company (ROC),
Liquidator, any other person affected by the scheme.
 Step 2- Scheme shall be approved by 90% majority shareholders.
 Step 3- File declaration of solvency (capability of paying off debts) with ROC.
 Step 4- Scheme shall be approved by 90% majority Creditors
 Step 5- Send the scheme to Central Government and Roc for approval.
 Step 6- If Roc has any objection it has to give to the Central Government within 30
days.
 Step 7- If the central Government feels the scheme is in the interest of public and
creditors then it will approve the scheme and will communicate the scheme to Roc but
at the same time if ROC had any objections and the central Government feels the
scheme is not in the interest of public and creditors then it will refer the companies to
NCLT ( section 232- No easy route available)

Section 234- Merger or Amalgamation of a company with a foreign company

 If an Indian company wants to merge with a foreign company then it has to follow the
procedure given under Section 232 and additionally approval of the RBI must be
obtained and the scheme must provide for the manner of payment of considerations.

Section 235- Power to acquire shares of shareholders dissenting from the

scheme approved by majority
  Step 1– The Transferee Company offers to acquire shares from shareholders of
Transferor Company. Out of all the shareholders 90% or more accept the offer and the
rest 10% or less dissent and are not willing to sell their share holding.
 Step 2 – Now the transferee Company will send a notice to dissenting shareholders
saying that since 90% shareholders have agreed to sell their shares the company will
acquire the rest as well.
 Step 3- Dissenting shareholders will give an application to NCLT against acquisition
of their shares.
 Step 4- Transferee Company will give an application to NCLT to acquire the shares.
 Step 5- Since more than 90% shareholders have accepted to the offer thus NCLT
passes a final order to Transferor Company to register the transfer and order the
transferee company to pay the consideration. NCLT does not reject the application of
the transferee company at this stage as it does not favour in affecting the decisions of
the transferee company due to only a mere 5-10% of shareholders dissenting.

Section 236- Purchase of minority shares

 In this section, if the acquirer along with persons acting in concert (PAC –persons
who have a common objective or purpose to acquisition shares or voting rights or
control over a company) already holds 90% or more shares of the target company
then the acquirer will give the remaining shareholders an offer to sell their shares as
well.
 For this the acquirer company with keep the consideration money in a separate bank
account and will pay off the remaining shareholders within 60 days.

Section 237- Power of the Central Government to provide for Amalgamation

in public interest

 If it is essential in public interest, the Central Government by notification in the

official gazette can order amalgamation of the companies.
 Central Government usually passes such amalgamation order between a healthy
company with a sick company to revive the sick company and its employees.
 Central Government will have to give orders for pending legal proceedings by or
against Transferor Company.
 Central Government will also have to give orders for all members, creditors to have
nearly same interest in the transferee company and if there is any difference then they
have to be compensated.
 If any person is aggrieved by the compensation can appeal to the NCLT.
  If the transferor and transferee company have any objections with the order for
amalgamation then they can put forward their objections to the NCLT. NCLT will
hear their objection and pass a final order.

Section 238 Registration of offer of schemes involving transfer of shares

 Whenever a transferee company wants to give a circular (offer and details of share
transfer) to the shareholders, it has to first get the circular registered with the ROC
only then it can give the same to the shareholders.

Section 239- Preservation of books and papers of the Amalgamated company

 Books and papers of the Amalgamated Company (the company that ceases to exist
after the merger) shall not be disposed off, without the permission of the Central
Government.
 Before giving the permission the Central Government has to appoint a person to
examine books and papers.

Section 240- Liability of officers in respect of offenses committed prior to the

merger or amalgamation

 The liability of officers who had committed an offense prior to merger or

amalgamation will continue even after merger or amalgamation.

Difference between Merger Acquisition and Amalgamation

The major difference between merger acquisition and amalgamation are as follows:

Point of Mergers Acquisitions Amalgamations

Difference
Required No. of Minimum 2 companies are Minimum two companies are Minimum three
Entities required as only 1 required wherein 1 company companies are required as
company will remain after takes over the shares as well amalgamation of 2 results
absorbing the target as assets of another in a new entity.
company. company.
Size of the Both the companies that Small to medium sized firms Here sizes of the target
Company are involved are equal in are acquired by larger
 terms of size. companies. companies are comparable.
Impact on their Shares of the absorbing The buyer co. purchases Shares of the new company
Shares company are given to the more than 50% of the shares are given to shareholders of
shareholders of the of the target company. existing firms.
absorbed company.
Resulting Entity 1 of the existing company The acquired company then Existing companies lose
absorbs the target ceases to exist and it their identity and result in
company for retaining its becomes a part of the forming an entirely new
identity. acquiring co. company.
Driver for the Mergers are generally Acquisition is mostly driven Amalgamation is initiated
Consolidation driven by the absorbing by the buyer company and generally by both the
company only. with or without even the companies with an equal
consent of the acquired interest.
company.
Accounting and Assets as well as liabilities 1 firm acquires completely Assets as well as liabilities
tax Treatment of the absorbed company the assets and liabilities of of the existing firms are
are consolidated. the target company or firm. transferred to balance sheet
of the newly formed

CONCLUSION

Mergers, Acquisitions and alliance talks are heating up in India and are growing with an ever
increasing cadence. They are no more limited to one particular type of business. The list of past
and anticipated mergers covers every size and variety of business -- mergers are on the increase
over the whole marketplace, providing platforms for the small companies being acquired by
bigger ones. The basic reason behind mergers and acquisitions is that organizations merge and
form a single entity to achieve economies of scale, widen their reach, acquire strategic skills, and
gain competitive advantage. In simple terminology, mergers are considered as an important tool
by companies for purpose of expanding their operation and increasing their profits, which in
façade depends on the kind of companies being merged. Indian markets have witnessed
burgeoning trend in mergers which may be due to business consolidation by large industrial
houses, consolidation of business by multinationals operating in India, increasing competition
against imports and acquisition activities. Therefore, it is ripe time for business houses and
corporates to watch the Indian market, and grab the opportunity.

M&A has been proven to be one of the most effective ways to get over present obstacles and
advance business growth. The domestic enterprises appear to have benefited from corporate
restructuring primarily through M&A, operating at a larger scale, and other synergy effects to
increase their efficiency and competitiveness in the global market. However, the arrival of
foreign businesses through M&A appears to have increased competition in the local market,
driving businesses to improve their competitiveness.

A successful merger may grow a market and an industry's economy like nothing else has. R&D,
improved cash flow, higher shareholder returns, and limitless development potential. The
enterprises who are fighting to remain in the market without completely ceding control to the
major competitors with deep funds have found that mergers and acquisitions are godsend. A
merger makes it easier to raise additional money, which promotes the lifespan of such firms.
Overall, a merger will have considerably more good consequences on the Indian economy than
negative ones over the long run.