ADVISORY SERVICES REGARDING MERGERS AND TAKEOVERS

BY VIDHYA.K

MERGERS

Merger refers to a situation where one company acquires the net assets of another company and the latter is dissolved.

The acquired company pays the cash or securities to the shareholders of that merged company.

Merger of a healthy company with a sick company.

TYPES OF MERGERS

Horizontal merger.Vertical merger.Conglomerate merger.

HORIZONTAL MERGER

Combining two or more companies in the

same line of business.

Two companies which are producingessentially the same products or

providingthe same services and are in directcompetition with each other will jointtogether.

• LIPTON INDIA AND BROOKE BOND MERGED

VERTICAL MERGERTwo or more companies which are

engaged in the production of same goods or services but at different stages of production or services, may join together.

EXAMPLERELIANCE

TELECOMMUNICATIONS AND FLAG TELECOM GROUP GOT MERGED.

CONGLOMERATE MERGERS

Merging of two or more companies whose business is unrelated with each other vertically or horizontally.

EXAMPLE:L&T COMPANY AND VOLTAS LTD...

ACQUISITIONS (TAKEOVERS)

TAKEOVERS:It refers to acquiring the control

by one company over another company.

The control may be acquired through purchase of majority of the shares of the other company.

The acquiring company is termed as HOLDING COMPANY.

CONT...

The company which holds majority of the shares of another company is called HOLDING COMPANY.

The SUBSIDIARY COMPANY is that which is under the control of holding company.

EXAMPLE:RELIANCE INDUSTRIES LIMITED, ACQUIRED 78% OF SHARES IN NETWORK18 MEDIA AND INVESTMENTS FOR RS.4000CRORES IN MAY 2014

DIFFERENCE BETWEEN MERGERS AND ACQUISITIONS

MERGERSOne company is

merged with another and the latter is dissolved.

It is a mutual decision.

ACQUISITIONSOne company having

control over another and the latter continue to exist.

It can be friendly takeover or hostile takeover.

CONT...

MERGERSMerger is more

expensive-legal cost is high.

It is time consuming and the company has to maintain so much legal issues.

Dilution of ownership occurs in merger.

ACQUISITIONSLess expensive than

mergers.

It is faster and easier transaction.

The acquirer does not experience the dilution of ownership.

ROLE OF MERCHANT BANKING IN MERGERS AND TAKEOVERS:

Merchant bankers act as a middlemen in setting negotiation between the offeree and the offeror.

Merchant bankers are the “professional expert”, they are in the position to safeguard the interest of the shareholders in both the companies.

Cont....

Merchant banker will negotiate the purchase consideration and the mode of

Payment.

Merchant bankers will estimate the financial positions of the companies.

Merchant banker will get approval from the government/RBI, draft the format of mergers, amalgamations and takeovers.

The role of merchant bankers falls in either of the Two:

SELLER /TARGET REPRESENTATION

BUYER/ACQUIRER REPRESENTATION

SELLER/TARGET REPRESENTATION:

The company which planned to sell their business, will request the merchant banker to

help them in selling with appropriateconsideration.The company that come for selling its business,sometimes have an idea to whom they want tosell their business. In this case, the merchantbankers duty becomes easier that they cannegotiate between the companies regarding thepurchase consideration, mode of payment , etc..

BUYER/ACQUIRER REPRESENTATION

The company that wants to purchase another company, will request the merchant bankers for acquiring it and sometimes asks for financing also.

In this case, the acquiring company will already have an idea of purchasing a particular company, or vice versa.

The merchant banker in this case can act as a middlemen and complete his duty by getting approval from government/RBI.

Make the right price for transaction to be held.

CONT....

If the buying company do not have an idea regarding which company to purchase, they will request the merchant bankers to help them.

In this case, merchant bankers will represent the buying company, search for suitable business firm to purchase, make negotiations regarding the purchase consideration, payment mode and completes his duty by framing the merger/amalgamation/takeovers format, get approval from GOVT/RBI.

LAWS REGULATING MERGERS/TAKEOVERS:Section 390 to 395 of the

companies act, deals with arrangements, mergers, amalgamations, and the procedure to be followed for getting the arrangement or the scheme to be approved.

The scheme must get approved by majority of the shareholders.

CONT...

The companies should conduct the meeting and give notice disclosing all materials relating to the scheme.

The central government is also required to file its report in an application seeking approval of compromise, under section 394(A).

The merchant banker should value the assets, liabilities and financial position of both the firms and frame the report.

RULES FOR MERGERS AND TAKEOVERS:

The acquirer must appoint a merchant banker, holding a certificate of registration as per the SEBI regulations.

The merchant banker should complete all the legal formalities which may involve listing obligations of stock exchanges, SEBI norms, companies act, etc.

CONT...

Merger requires approval of the court, it has the wider powers in merger process.

In case of both merger and acquisitions, the merchant banker is appointed to finalise the details which are made in accordance with the guidelines framed by SEBI.

Then the merging company/ Takeover company will inform to SEBI and stock exchange.

CONT...

After the companies got merged oracquisitions takes place, the

merchantbanker will collect certain

percentage asfees for the service rendered by

them.