intoduction to the project

7/29/2019 Intoduction to the Project

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PREFACE

The research project is an integral part of the curriculum and itspurpose is to provide the practical exposure of business world in

changing scenario. In this way it helps the student in development of

practical skills and analytical thinking process. Thus it helps in

molding the student according to the requirement of the market.

CONTENTS

SL.NO. CHAPTE

R

PARTICULARS PAGE

NO.

1 1 INTRODUCTION TO THEPROJECT.

2 1.1-SYNOPSIS 5


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3 1.2-MEANING AND CONCEPT 6

4 1.3-OBJECTIVES OF THE STUDY 7

5 1.4-RESEARCH METHODOLOGY 8

6 1.5-LITERATURE SURVEY 8

7 1.6-CHAPTERIZATION 9

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8 1.7-LIMITATION 9

9 2 MERGER AND

AMALGAMATIONS(HISTORICALIDEA AND REFERENCE TOTHE IDEA)

10

11 2.1-HISTORY OF MERGERS ANDACQUISITIONS(WAVES OF MERGER)

10 - 12

12 2.2-MEANING 13

13 2.3-VALUATION RELATED TO

MERGERS AND ACQUISITIONS

14 - 16

14 2.4-FINANCING MERGERS ANDACQUISITIONS

16 & 17

15 2.5-PROCEDURE FOR MERGER ANDAMALGAMATION

18 - 24

16 2.6-DISTINCTION BETWEENMERGERS AND AMALGAMATIONS

25

17 2.7-VARIETIES OF MERGER 26

18 2.8-SUMMARY OF CHAPTER-2 27

19 3 MERGER ANDAMALGAMATIONS DEALS(1990 TILL 2010)

20 3.1-TOP 10 M&A DEALS (1990-1999)

28

21 3.2-TOP 10 M&A DEALS (2000-2010)

29

22 3.3-TOP 10 M&A DEALS (A BRIEFDESCRIPTION)

30 & 31


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23 4 MERGER ANDAMALGAMATIONS (ACASE STUDY ON THEPETROLEUM SECTOR)

24 4.1-RELIANCE INDUSTRIES LIMITED 33

25 4.2-RELIANCE PETROLEUM LIMITED 33

26 4.3 A BRIEF REVIEW OF THEMERGER

34 - 36

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27 4.4-BENEFITS FROM THE MERGER 37 - 41

28 4.5-BUSINESS NEWS ON

FINALIZATION OF THE MERGER

42 & 43

29 4.6-Future of RPL shareholders 44 & 45

30 4.7-THE IMPACT OF RIL-RPL 46 & 47

31 4.8-SCENARIO AFTER THEMERGER

48

32 4.9-SHAREHOLDING AFTER ANDBEFORE MERGER

49 & 50

33 4.10-TAX BENEFITS TO THESHAREHOLDERS

51

34 4.11-QUESTIONARES ON TAXBENEFITS

52 & 53

35 4.12-SUMMARY 54

36 5 CONCLUSION OF THESTUDY

55 & 56

37 BIBLIOGRAPHY 57


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CHAPTER - 1

INTODUCTION TO THE PROJECT

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1.1- SYNOPSIS

THE RECENT BUZZWORD IN THE CORPORATE INDIA IS MERGER AND

AMALGAMATION AND THE WHOLE GAMBIT OF COMPANIES ARE GOING

IN FOR DOMESTIC AND GLOBAL ACUISITIONS.

WHAT NEEDS TO BE SEEN IN HOW WELL THE COMPANIES ARE REAPING

THE BENEFIT OVERALL.THIS RESEARCH HAS TRIED TO GIVE THE

DETAILS OF MERGER AND AMALGAMATION .FOR THE PURPOSE OF

ANALYZING I HAVE TAKEN UP THE CASE OF MERGER BETWEEN

RELIANCE INDUSTRIES LIMITED & RELIANCE PETROLEUM LIMITED.

In this project work an attempt has been made to show,

analyze and point out the implications about the mergers and acquisitions. A reference

has been made to the buy back announced by RELIANCE INDUSTRIES

LIMITED.

1.2-MEANING AND CONCEPTThe phrase M&A (abbreviated MERGERS AND AMALGAMATIONS) refers to theaspect of corporate strategy, corporate finance and management dealing with thebuying, selling and combining of different companies that can aid, finance, or help agrowing company in a given industry grow rapidly without having to create another
http://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Management


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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000business entity.

A merger is a transaction that results in the transfer of ownership and control of acorporation.

A transaction where two firms agree to integrate their operations because they have

resources and capabilities that together may create stronger competitive advantage.The term merger refers to a combination of two or more companies into a singlecompany and this combination may be either through consolidation or absorption.

A consolidation is a combination of two or more companies into a third entirely newcompany formed for the purpose. The new company absorbs the assets, and possibly

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liabilities, of both original companies which ceases to exist. When two firms merge,stocks of both are surrendered and new stocks in the name of new company are issued.Generally, mergers take place between two companies of more or less the same size.In case of absorption one company absorbs another company i.e. it purchases either theassets or shares of that company. The merger by absorption is always friendly in naturei.e. both the companies agree to the terms of absorption.

1.3-OBJECTIVES OF THE STUDY.

The main objective of the proposed study is to find out the level of impact on the

companies, investors, shareholders and other relevant factors on a merger and

acquisition.

Generally it is seen that mergers are done to improve financial performance and the

following motives are analyzed below.

Economy of scale: This refers to the fact that the combined company can often

reduce its fixed costs by removing duplicate departments or operations,

lowering the costs of the company relative to the same revenue stream, thus

increasing profit margins.

Economy of scope: This refers to the efficiencies primarily associated with

demand-side changes, such as increasing or decreasing the scope of marketing

and distribution, of different types of products.

Increased revenue or market share: This assumes that the buyer will be

absorbing a major competitor and thus increase its market power (by capturing

increased market share) to set prices.

Cross-selling: For example, a bankbuying a stock brokercould then sell its

banking products to the stock broker's customers, while the broker can sign up

the bank's customers for brokerage accounts. Or, a manufacturer can acquire

and sell complementary products.
http://en.wikipedia.org/wiki/Economy_of_scalehttp://en.wikipedia.org/wiki/Economy_of_scopehttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Market_sharehttp://en.wikipedia.org/wiki/Market_sharehttp://en.wikipedia.org/wiki/Cross-sellinghttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Economy_of_scalehttp://en.wikipedia.org/wiki/Economy_of_scopehttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Market_sharehttp://en.wikipedia.org/wiki/Cross-sellinghttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Stock_broker


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Synergy: For example, managerial economies such as the increased

opportunity of managerial specialization. Another example are purchasing

economies due to increased order size and associated bulk-buying discounts.

Taxation: A profitable company can buy a loss maker to use the target's loss as

their advantage by reducing their tax liability.

1.4-Research Methodology

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The methodology adopted in conducting the proposed study are as follows.-

Nature of data Mainly secondary data by the help of published reports of various

departments and companies, internet information, a few books, business journals.

Reports of various other scholars published on this topic were of immense help for

collecting the various data.

Application of statistical data various trends have been depicted with the help of

various statistical data like bar charts, pie charts, tabular representation of data etc. to

give a better representation of the matter.

1.5-LITERATURE SURVEY

A brief summary of other relevant research on this topic done-

KAMAL GHOSH RAY- strategy, valuation and integration- brief idea on

merger and amalgamation.

Merger and amalgamation-A.P.DASH-

Research for classification of merger, details, valuation methods.

Merger and amalgamation-EDWIN L. MILLER-legal procedure for mergerand amalgamation.

WILLIAM J. CARNEY- Data About The Yearly Mergers And Acquisition.

Ministry of Petroleum and Natural gas(Govt. of India),Annual Reports April2010.

N.R. SRIDHARAM & P.H.ARVIND PANDIAN,GUIDE TO TAKEOVERSAND MERGERS.-

1.6-CHAPTERIZATION


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MERGERS AND AMALGAMATIONS

Chapter1-

This chapter basically deals with analysis and details about the basic idea about theamalgamation and merger, a brief history of the merger and amalgamation, procedure

for merger and amalgamations.

Chapter-2

-The second chapter gives coverage to the mergers and amalgamations with respect to

Indian economy, year wise details of merger and acquisitions of the world.

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Chapter-3

The third chapter deals with merger and amalgamations deals (India and world wide)

Chapter-4

This chapter reflects the case study on merge and amalgamations in the petroleum

sector.

1.7-LIMITATION OF THE STUDY

The present study has seen limitations that need to be taken into account when

considering the study and its contributions. In this research report there are certain

things which are needed to be explored and should be investigate at a big approach.

There was also some time constraints which also limited my research work.

In addition to winding up the limitation of the project it was very interesting to

investigate about the topic and the market analysis.


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CHAPTER - 2

2.1-History of Mergers and Acquisitions

Tracing back to history, merger and acquisitions have evolved in five stages and eachof these are discussed here. As seen from past experience mergers and acquisitions are

triggered by economic factors. The macroeconomic environment, which includes thegrowth in GDP, interest rates and monetary policies play a key role in designing theprocess ofmergers or acquisitions between companies or organizations.

o First Wave Mergers
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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000The first wave mergers commenced from 1897 to 1904. During this phase mergeroccurred between companies, which enjoyed monopoly over their lines of productionlike railroads, electricity etc. the first wave mergers that occurred during the aforesaidtime period were mostly horizontal mergers that took place between heavymanufacturingindustries.

End Of 1st Wave Merger

Majority of the mergers that were conceived during the 1st phase ended in failure sincethey could not achieve the desired efficiency. The failure was fuelled by the slowdown

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of the economy in 1903 followed by the stock market crash of 1904. The legalframework was not supportive either. The Supreme Court passed the mandate that theanticompetitive mergers could be halted using the Sherman Act.

o Second Wave Mergers

The second wave mergers that took place from 1916 to 1929 focused on the mergersbetween oligopolies, rather than monopolies as in the previous phase. The economicboom that followed the post world war I gave rise to these mergers. Technologicaldevelopments like the development of railroads and transportation by motor vehiclesprovided the necessary infrastructure for such mergers or acquisitions to take place.The government policy encouraged firms to work in unison. This policy wasimplemented in the 1920s.

The 2nd wave mergers that took place were mainly horizontal or conglomerate innature. Te industries that went for merger during this phase were producers of primarymetals, food products, petroleum products, transportation equipments and chemicals.The investments banks played a pivotal role in facilitating the mergers andacquisitions.

End of 2nd Wave Mergers

The 2nd wave mergers ended with the stock market crash in 1929 and the greatdepression. The tax relief that was provided inspired mergers in the 1940s.

o

Third Wave MergersThe mergers that took place during this period (1965-69) were mainly conglomeratemergers. Mergers were inspired by high stock prices, interest rates and strictenforcement of antitrust laws. The bidder firms in the 3rd wave merger were smallerthan the Target Firm. Mergers were financed from equities; the investment banks nolonger played an important role.

End Of The 3rd Wave Merger

The 3rd wave merger ended with the plan of the Attorney General to splitconglomerates in 1968. It was also due to the poor performance of the

conglomerates.Some mergers in the 1970s have set precedence. The most prominentones were the INCO-ESB merger; United Technologies and OTIS Elevator Merger arethe merger between Colt Industries and Garlock Industries.
http://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://www.economywatch.com/mergers-acquisitions/history.html


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o Fourth Wave Merger

The 4th wave merger that started from 1981 and ended by 1989 was characterized byacquisition targets that wren much larger in size as compared to the 3rd wave mergers.Mergers took place between the oil and gas industries, pharmaceutical industries,banking and airline industries. Foreign takeovers became common with most of thembeing hostile takeovers. The 4th Wave mergers ended with anti takeover laws,Financial Institutions Reform and the Gulf War.

o Fifth Wave Merger

The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom

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and deregulation. The 5th Wave Merger took place mainly in the banking andtelecommunications industries. They were mostly equity financed rather than debtfinanced. The mergers were driven long term rather than short termprofit motives. The5th Wave Merger ended with the burst in the stock market bubble.

Hence we may conclude that the evolution of mergers and acquisitions has been longdrawn. Many economic factors have contributed its development. There are severalother factors that have impeded their growth. As long as economic units of productionexist mergers and acquisitions would continue for an ever-expanding economy.

2.2-MEANING OF THE PHRASE MERGER

AND AMALGAMATION.

The phrase M&A (abbreviated MERGERS AND AMALGAMATIONS) refers to theaspect of corporate strategy, corporate finance and management dealing with thebuying, selling and combining of different companies that can aid, finance, or help agrowing company in a given industry grow rapidly without having to create anotherbusiness entity.A merger is a transaction that results in the transfer of ownership and control of acorporation. Merger

A transaction where two firms agree to integrate their operations because they have

resources and capabilities that together may create stronger competitive advantage.The term merger refers to a combination of two or more companies into a singlecompany and this combination may be either through consolidation or absorption.

A consolidation is a combination of two or more companies into a third entirely newcompany formed for the purpose. The new company absorbs the assets, and possiblyliabilities, of both original companies which ceases to exist. When two firms merge,stocks of both are surrendered and new stocks in the name of new company are issued.Generally, mergers take place between two companies of more or less the same size.In case of absorption one company absorbs another company i.e. it purchases either theassets or shares of that company. The merger by absorption is always friendly in nature

i.e. both the companies agree to the terms of absorption.

2.3-Valuation Related to Mergers and

Acquisitions
http://www.economywatch.com/mergers-acquisitions/history.htmlhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Corporationhttp://www.economywatch.com/mergers-acquisitions/history.htmlhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Corporation


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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000The methods of valuation related to mergers and acquisitions can be broadlycategorized into three types, namely market based method, income based method, aswell as asset based method. All these methods carry a significant degree of importancein the context of mergers and acquisitions. There are numerous elements, whichascertain whether a particular firm should be acquired or not.

The financial steadiness of the firm, which is to be taken over is quite important to findout. In addition, the financial track record over the last few years and trendsdemonstrated in the macroeconomic ratio and indices require to be analyzed. Amongthe methods of valuation related to mergers and acquisitions, the market based methodmight be regarded as more appropriate, nevertheless, all the valuation methods arecrucial, taking into account the condition that is prevalent at the time when a merger or

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acquisition is going to take place.

o Methods of Valuation Related to

Mergers and Acquisitions

The methods of valuation associated with mergers and acquisitions can be broadlyclassified into the following types:

1) Market Based Method

In valuation of mergers and acquisitions with the help of market based method, thedifferent attributes of the firm which is going to be acquired are compared with thesimilar types of attributes of other firms in the market. These firms (not the firm in

question) normally have a market value that has been set up earlier. Furthermore, someother factors are to be taken into consideration before the comparison of the differentattributes is done. First of all, which elements need comparison are to be distinguishedand secondly, which are the firms that are going to act as comparables. Public sectorcorporations involved in the same type of industry (of the target firm) can be chosen ascomparables. Nevertheless, if the target firm is not registered with a stock exchange oris relatively small in its size than the public sector corporations, comparing it with thepublic sector corporations may not be useful. In these circumstances, public andprivate databases are there and these are basically commercial databases.

The other features that require to be compared are net earnings, gross revenue, and

book value of assets. As soon as all the information have been gathered, a broad-basedcomparison is performed for obtaining the value of the target firm.

The market based method can be further categorized into the following types:

Market multiple (or price-earnings ratio) of comparable firms for firms that arenot listed

Market capitalization of listed firms

2) Income Based Method

The income based method of valuation associated with mergers andacquisitions takes into account the net present value. The net present value ofearnings that is going to be received in the future is taken into considerationthrough the implementation of a mathematical formula.

The income based method can be further classified into the following


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types:

Cost to create technique

Free cash flow/discounted cash flow method

Capitalized earnings technique

3) Asset Based Method

This method of valuation related to mergers and acquisitions is applied whilethe target firm is running at a loss. In this kind of a situation, the valuation ofthe assets of the firm at loss is estimated. Besides this procedure, the income

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based method and market based method can also be applied. Valuationreceived with the help of these procedures may render small values.Nevertheless, there is a probability that these methods would produce the truecondition of the assets of the target firm.

The asset based method can be further categorized into the following

forms:

Valuation ofIntangible Assets

Economic Book Value or Net Adjusted Asset Value

Liquidation Value

2.4-FINANCING MERGER AND

ACQUISITIONS

Mergers are generally differentiated from acquisitions partly by the way in which theyare financed and partly by the relative size of the companies. Various methods offinancing an M&A deal exist:

Cash

Payment by cash. Such transactions are usually termed acquisitions rather than

mergers because the shareholders of the target company are removed from the pictureand the target comes under the (indirect) control of the bidder's shareholders.

Stock

Payment in the acquiring company's stock, issued to the shareholders of the acquiredcompany at a given ratio proportional to the valuation of the latter.

Which method of financing to choose ?

There are some elements to think about when choosing the form of payment. When

submitting an offer, the acquiring firm should consider other potential bidders andthink strategically. The form of payment might be decisive for the seller. With purecash deals, there is no doubt on the real value of the bid (without considering aneventual earnout). The contingency of the share payment is indeed removed. Thus, acash offer preempts competitors better than securities. Taxes are a second element toconsider and should be evaluated with the counsel of competent tax and accounting
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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000advisers. Third, with a share deal the buyers capital structure might be affected andthe control of the New co modified. If the issuance of shares is necessary, shareholdersof the acquiring company might prevent such capital increase at the general meeting ofshareholders. The risk is removed with a cash transaction. Then, the balance sheet ofthe buyer will be modified and the decision maker should take into account the effectson the reported financial results. For example, in a pure cash deal (financed from the

companys current account), liquidity ratios might decrease. On the other hand, in apure stock for stock transaction (financed from the issuance of new shares), thecompany might show lower profitability ratios (e.g. ROA). However, economicdilution must prevail towards accounting dilution when making the choice. The formof payment and financing options are tightly linked. If the buyer pays cash, there arethree main financing options:

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- Cash on hand: it consumes financial slack (excess cash or unused debt capacity) andmay decrease debt rating. There are no major transaction costs.

- Issue of debt: it consumes financial slack, may decrease debt rating and increase cost

of debt. Transaction costs include underwriting or closing costs of 1% to 3% of theface value.

- Issue of stock: it increases financial slack, may improve debt rating and reduce costof debt. Transaction costs include fees for preparation of a proxy statement, anextraordinary shareholder meeting and registration.

- Shares in treasury: it increases financial slack (if they dont have to be repurchasedon the market), may improve debt rating and reduce cost of debt. Transaction costsinclude brokerage fees if shares are repurchased in the market otherwise there are nomajor costs.

In general, stock will create financial flexibility. Transaction costs must also beconsidered but tend to have a greater impact on the payment decision for largertransactions. Finally, paying cash or with shares is a way to signal value to the otherparty, e.g.: buyers tend to offer stock when they believe their shares are overvaluedand cash when undervalued.

2.5-PROCEDURE FOR MERGER AND

AMALGAMATION.

Top managements commitments towards merger and amalgamationTop managements commitments towards merger and amalgamation. Topmanagement defines the organisations goal and outlines the objectives. Theorganisations goal for business expansion could be accomplished, interalia throughbusiness combinations as similatinga target corporate which can remove the presentdeficiencies in the organization and can contribute in the required direction toaccomplish the goal of business expansion through enhanced commercial activity i.e.supply of inputs and market for output product diversification, adding up new productsand improved technological process, providing new distribution channels and marketsegments, making available technical personnel and experienced skilled manpower,research and development establishments etc .Depending upon the specific need and

cost advantage with reference to creating a new set up or acquiring a well-establishedset-up firm.

Search for a merger partnerThe top management may use their own contacts with competitors in the same line ofeconomic activity or in the other diversified field which could be identified as better


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0100090000031602000002009601000000009601000026060f002203574d46430100000000000100a2c30000000001000000000300000000000000030000010000006c00000000000000000000001a000000370000000000000000000000950500009505000020454d4600000100000300001000000002000000000000000000000000000000f6090000e40



0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000merger partners or may use the contacts of merchant bankers, financial consultants andother agencies in locating suitable merger partners. A number of corporate candidatesmay be short listed and identified. Such identification should be based on the detailedinformation of the merger partners collected from published and private sources. Suchinformation should reveal the following aspects viz:1) Organisational history of business and promoters and capital

structure.2) Organisational goals3) Product, market and competitors4) Organisational setup and management pattern5) Assets profile: Movable and immovable assets, land and building6) Manpower skilled, unskilled, technical personnels and detailed particulars of

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management employees.

Steps for merger and amalgamation :-

Once the merger partner has been identified and terms of merger are settled theprocedure summarized in Appendix III can be followed. An explanation to the saidsteps is given below.

a - Scheme of Amalgamation-The scheme of amalgamation should be prepared by the companies, which havearrived at a consensusto merge. There is no specific form prescribed for scheme of amalgamation butscheme should generally contain the following information:1. Particulars about transferee and transferor companies2. Appointed date3. Main terms of transfer of assets from transferor to transferee with power to executeon behalf or for transferee the deed or documents being given to transferee.

4. Main terms of transfer liabilities from transferor to transferee covering anyconditions attached to loans/debentures/ bonds/other liabilities from bank /financial

institution/ trustees and listing conditions attached thereto.5. Effective date when the scheme will come into effect6. Conditions as to carrying on the business activities by transferor between

appointed date and effective date.7. Description of happenings and consequences of the scheme coming into effect oneffective date.8. Share capital of transferor company specifying authorized capital, issued capital

and subscribed and paid up capital9. Share capital of transferee company covering above heads.10 Description of proposed are exchange ratio, any conditions attached thereto, anyfractional share certificates to be issued, transferee companys responsibility to obtain

consent of concerned authorities for issue and allotment of shares and listing.11. Surrender of shares by shareholder of transferor company for exchange into newshare certificates.12 Conditions about payment of dividend, ranking of equity shares, pro rata dividenddeclaration and distribution.13. Status of employees of the transferor companies from effective date and the status


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0100090000031602000002009601000000009601000026060f002203574d46430100000000000100a2c30000000001000000000300000000000000030000010000006c00000000000000000000001a000000370000000000000000000000950500009505000020454d4600000100000300001000000002000000000000000000000000000000f6090000e40



0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000of the provident fund, gratuity fund, super annuity fund or any special scheme or fundscre-ated or existing for the benefit of the employees.14. Treatment on effective date of any debit balance of transferor company balancesheet.15.Miscellaneous provisions covering income-tax dues, contingencies and other

accounting entries deserving attention or treatment.16.Commitment of transferor and transferee companies towards makingapplications/petitions under section 391 and 394 and other applicable provisions of thecon Companies Act, 1956 to their respective High Courts.17. Enhancement of borrowing limits of the transferee company upon the schemecoming into effect.

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18. Transferor and transferee companies give assent to change in the scheme by thecourt or other authorities under the law and exercising the powers on behalf of thecompanies by their respective Boards.19. Description of powers of delegate of transferee to give effect to the scheme.20. Qualification attached to the scheme, which require approval of different agencies,etc.21. Description of revocation/cancellation of the scheme in the absence of approvalsqualified in clause 20 above not granted by concerned authorities.22. Statement to bear costs etc. in connection with the scheme by the transfereecompany.

B - Approval of Board of Directors for the schemeRespective Board of Directors for transferor and transferee companies are required toapprove the scheme of amalgamation.

C - Approval of the scheme by specialised financialinstitutions/ banks/trustees for debenture holders .The Board of Directors should in fact approve the scheme only after it has beencleared by the financial institutions/banks, which have granted loans to thesecompanies or the debenture trustees to avoid any major change in the meeting ofcreditors to be convened at the instance of the Company Courts under section 391 ofthe Companies Act, 1956. Approval of Reserve Bank of India is also needed where thescheme of amalgamation contemplates issue of share/payment of cash to non-residentIndians or foreign national under the provisions of Foreign Exchange Management.(Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.In particular, regulation 7 of the above regulations provide for compliance of certainconditions in the case of scheme of merger or amalgamation as approved by the court

D- Intimation to Stock Exchange about proposedamalgamation.Listing agreements entered into between company and stock. exchange require the

company to communicate price-sensitive information to the stock exchangeimmediately and simultaneously when released to press and other electronic media onconclusion of Board meeting according approval to the scheme.

E - Application to Court for directions.The next step is to make an application under section 39(1) to the High Court havingjurisdiction over the Registered Office of the company, and the transferee companyshould make separate applications to the High Court. The application shall be made bya Judges summons in Form No. 33 supported by an affidavit in Form No. 34 (see rule82 of the Companies (Court) rules, 1959). The following documents should besubmitted with the Judges summons:(a) A true copy of the Companys Memorandum and Articles.


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0100090000031602000002009601000000009601000026060f002203574d46430100000000000100a2c30000000001000000000300000000000000030000010000006c00000000000000000000001a000000370000000000000000000000950500009505000020454d4600000100000300001000000002000000000000000000000000000000f6090000e40



0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000(b) A true copy of the Companys latest audited balance sheet.(c) A copy of the Board resolution, which authorises the Director to make theapplication to the High Court.

F - High Court directions for members meeting.Upon the hearing of the summons, the High Court shall give directions fixing the date,time and venue and quorum for the members meeting and appoint an AdvocateChairman to preside over the meeting and submit a report to the Court. Similardirections are issued by the court for calling the meeting of creditors in case such arequest has been made in the application.

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G - Confirmation about service of the notice.Ensure that at least one week before the date of the meeting, the Chairman appointedfor the meeting files an Affidavit to the Court about the service of notices to theshareholders that the directions regarding the issue of notices and advertisement havebeen duly complied with.

H - Holding the shareholders general meeting and passingthe resolutions.The general meeting should be held on the appointed date. Rule 77 of the Companies(Court) Rules prescribes that the decisions of the meeting held pursuant to the courtorder should be ascertained only by taking a poll. The amalgamation scheme should beapproved by the members, by a majority in number of members present in person oron proxy and voting on the

resolution and this majority must represent at least ths in value of the shares held bythe members who vote in the poll.

I - Filing of resolutions of general meeting with Registrar ofCompanies.Once the shareholders general meeting approves the amalgamation scheme by a

majority in number of members holding not less than 3/4 in value of the equity shares,the scheme is binding on all the members of the company. A copy of the resolutionpassed by the shareholders approving the scheme of amalgamation should be filedwith the Registrar of Companies in Form No. 23 appended to the Companies (CentralGovernments) General Rules and Forms, 1956 within 30 days from the date ofpassing the resolution.

J- Submission of report of the chairman of the generalmeeting to Court.The chairman of the general meeting of the shareholders is required to submit to theCourt within seven days from the date of the meeting a report in Form No. 39,Companies (Court) Rules, 1959 setting out therein the number of persons who attendeither personally or by proxy, and the percentage of shareholders who voted in favourof the scheme as well as the resolution passed by the meeting.

K - Submission of Joint petition to court for sanctioning thescheme.Within seven days from the date on which the Chairman has submitted his report aboutthe result of the meeting to the Court, both the companies should make a joint petitionto the High Court for approving the scheme of amalgamation. This petition is to bemade in Form No. 40 of Companies (Court) Rules. The Court will fix a date of hearingof the petition. The notice of the hearing should be advertised in the same papers in


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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000which the notice of the meeting was advertised or in such other newspapers as theCourt may direct, not less than 10 days before the date fixed for the hearing (Rule 80of Companies (Court) Rules].

L- Issue of notice to Regional Director, Company Law Boardunder section 394 A.

On receipt of the petition for amalgamation under section 391 of Companies Act, 1956the Court will give notice of the petition to the Regional Director, Company LawBoard and will take into consideration the representations, if any, made by him.

M- Hearing of petition and confirmation of schemeHaving taken up the petition by the Court for hearing it will hear the objections first

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and if there is no objection to the amalgamation scheme from Regional Director orfrom any other person who is entitled to oppose the scheme, the Court may pass anorder approving the scheme of amalgamation in; Form No. 41 or Form No. 42 ofCompanies (Court) Rules. The court may also pass order directing that all the property,rights and powers of the transferor company specified in the schedules annexed to theorder be transferred without further act or deed to the transferee

company and that all the liabilities and duties of the transferor company be transferredwithout further act or deed.

N - Filing of Court order with ROC by both the companies.Both the transferor and transferee companies should obtain the Courts ordersanctioning the scheme of amalgamation and file the same with ROC with theirrespective jurisdiction as required vide section 394(3) of the Companies Act,1956 within 30 days after the date of the Courts order in Form No. 21 prescribedunder the (Central Governments) General Rules and Forms, 1956. The amalgamationwill be given effect to from the date on which the High Courts order is filed with theRegistrar.

O - Transfer of the assets and liabilities.Section 394(2) vests power in the High Court to order for the transfer of any propertyor liabilities from transferor company to transferee company. In pursuance of and byvirtue of such order such properties and liabilities of the transferor shall automaticallystand transferred to transferee company without any further act or deed from the datethe Courts order is filed with ROC.

P - Allotment of shares to shareholders of transferorcompany.Pursuant to the sanctioned scheme of amalgamation, the shareholders of the transferorcompany are entitled to get shares in the transfereecompany in the exchange ratio provided under the said scheme. There are threedifferent situations in which allotment could be given effect:1. Where transferor company is not a listed company, the formalities prescribed underlisting agreement do not exist and the allotment could take place without setting therecord date or giving any advance notice to shareholders except asking them tosurrender their old share certificates for exchange by the new ones.2. The second situation will emerge different where transferor company is a listed

company. In this case, the stock exchange is to be intimated of the record date bygiving at least 42 days notice or such notice as provided in the listing agreement.3. The third situation is where allotment to Non-Resident Indians is involved andpermission of Reserve Bank of India is necessary.The allotment will take place only on receipt of RBI permission.In this connection refer to regulations 7, 9 and 10B of Foreign Exchange Management


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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000(Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000as and where applicable. THEMEHaving made the allotment, the transferee company is required to file with ROC withreturn of allotment in Form No. 2 appended to the Companies (Central Governments)General Rules and Forms within 30 days from the date of allotment in terms of section75 of the Act. Transferee company shall having issued the new share certificates

in lieu of and in exchange of old ones, surrendered by transferors shareholders shouldmake necessary entries in the register of members and index of members for the sharesso allotted in terms of sections 150 and 151 respectively of the Companies Act, 1956.Q - Listing of the shares at stock exchange.After the amalgamation is effected, the company which takes over the assets andliabilities of the transferor company should apply to the Stock Exchanges where its

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securities are listed, for listing the new shares allotted to the shareholders of thetransferor company.

R - Court order to be annexed to memorandum of transfereecompany.It is the mandatory requirement vide section 391(4) of the Companies Act, 1956 thatafter the certified copy of the Courts order sanctioning the scheme of amalgamation isfiled with Registrar, it should be annexed to every copy of the Memorandum issued bythe transferee company. Failure to comply with requirement renders the company andits officers liable to punishment.

S - Preservation of books and papers of amalgamated Co.Section 396A of the Act requires that the books and papers of the amalgamatedcompany should be preserved and not be disposed of without prior permission of theCentral Government.

T - The Post merger secretarial obligations.There are various formalities to be complied with after amalgamationof the companies is given effect to and allotment of shares to the shareholders of thetransferor company is over. These formalities include filing of returns with Registrarof Companies, transfer of investments of transferor company in; the name of thetransferee, intimating banks and financial institutions, creditors and debtors about thetransfer of the transferor companys assets and liabilities in the name of the transfereecompany, etc.

U - Withdrawal of the Scheme not permissible.Once the scheme for merger has been approved by requisite majority of shareholdersand creditors, the scheme cannot be withdrawn by subsequent meeting of shareholdersby passing Resolution for withdrawal of the petition submitted to the court undersection 391 for sanctioning the scheme.

V - Cancellation of the scheme and order of winding-up.It was held by the Supreme Court m n J.K (Bombay) (P) Ltd. Vs. New Kaiser-I-Hindthat the effect of winding up order is that except for certain preferential paymentsprovided in the Act, the property of the company is applied in satisfaction of itsliabilities pari passu. Pari passu distribution is to be made in satisfaction of itsliabilities as they exist at the commencement of the winding-up. So long as the schemeis in operation and is bind on the company and its creditors, the rights and obligationsof those on whom it is binding are undoubtedly governed by its provisions. But oncethe scheme is cancelled under section 392(2) on the ground that it cannot besatisfactorily worked and a winding-up order passed such an order is deemed to be forall purposes to be one made under section 433. It is not because as if the scheme hasbeen sanctioned under section 391 that a winding-up order under section 392 (2)


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0000000000040000002d010000040000002d010000040000002d0100000400000002010100050000000902000000020d000000320a1000000001000400000000003d003d0020000a001c000000fb020600030000000000bc02000000000102022253797374656d0000000000000000000000000000000000000000000000000000040000002d010100040000002d010100030000000000cannot be made. The Specialised formalities to cover up amalgamation .

The steps for merger or amalgamation discussed above are not the only considerationseffecting merger but in addition to the above and in relation thereto a number ofspecial formalities are also complied with which have been covered in detail inspecific chapters like share valuation and exchange ratio, accounting aspects of

funding of reorganization plans, etc.

2.6-Distinction between Mergers and

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Although they are often uttered in the same breath and used as though they weresynonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner,the purchase is called an acquisition. From a legal point of view, the target companyceases to exist, the buyer "swallows" the business and the buyer's stock continues to betraded.

In the pure sense of the term, a merger happens when two firms, often of about thesame size, agree to go forward as a single new company rather than remain separatelyowned and operated. This kind of action is more precisely referred to as a "merger ofequals." Both companies' stocks are surrendered and new company stock is issued inits place. For example, both Daimler-Benz and Chrysler ceased to exist when the twofirms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, onecompany will buy another and, as part of the deal's terms, simply allow the acquiredfirm to proclaim that the action is a merger of equals, even if it's technically anacquisition. Being bought out often carries negative connotations, therefore, bydescribing the deal as a merger, deal makers and top managers try to make thetakeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joiningtogether is in the best interest of both of their companies. But when the deal isunfriendly - that is, when the target company does not want to be purchased - it is

always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whetherthe purchase is friendly or hostile and how it is announced. In other words, the realdifference lies in how the purchase is communicated to and received by the targetcompany'sboard of directors, employees and shareholders.

2.7-Varieties of Mergers

From the perspective of business structures, there is a whole host of different mergers.Here are a few types, distinguished by the relationship between the two companies thatare merging:

Horizontal merger - Two companies that are in direct competition and

share the same product lines and markets.
http://www.investopedia.com/terms/t/targetfirm.asphttp://www.investopedia.com/terms/c/ceo.asphttp://www.investopedia.com/terms/c/ceo.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://www.investopedia.

intoduction to the project

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