Mergers, Amalgamation, Acquisitions and Takeovers

In external expansion, a firm acquires a running business and grows overnight through corporate
combination in the form of mergers, acquisitions, amalgamations and takeovers which have now
become important features of corporate restructuring. They enhance competition, cause breaking
of trade barriers, free flow of capital across countries and globalisation of businesses. These are
strategic decisions taken for maximisation of a company's growth by enhancing its production
and marketing operations and are being used in a wide array of fields such as IT, telecom, BPO
and in traditional businesses to gain strength, expand customer base, cut competition or enter into
a new market or product segment.
In India, M&A deals valuing USD 33.83 bn were executed during first quarter of financial year
2010 with a growth of about 257% over corresponding quarter last year, which registered deals
worth USD 9.49 billion (April – June 2009).The number of M&A deals recorded an increase to
60 from 43 wrt the preceding quarter. The cross border outbound, domestic and inbound M & A
deals occupied a 48.55%, 39.43% and 12.02% share with 28, 27 and 5 number of deals respectively

Mergers and Amalgamations

A merger is a combination of two or more businesses into one business when firms, often of
similar size, agree to move ahead and exist as a single new company. It’s referred to as a "merger
of equals." Mergers are mostly financed by a stock swap. Both companies surrender their stocks
and stock of the new company is issued as a replacement. A single administrative sec tion then
manages the new union. Amalgamation signifies blending of two or more existing companies into
one company, the blended companies losing their identities and forming themselves into a
separate legal identity. Merger is restricted to a case where the assets and liabilities of the
companies get vested in another company, the company which is merged losing its identity and
its shareholders becoming shareholders of the other company. On the other hand, amalgamation
is an arrangement, whereby the assets and liabilities of two or more companies become vested in
another company (which may or may not be one of the original companies) and which would
have as its shareholders substantially, all the shareholders of the amalgamating companies

Laws in India use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section
2(1A)] defines amalgamation as the merger of one or more companies with another or the
merger of two or more companies to form a new company, in such a way that all assets and
liabilities of the amalgamating companies become assets and liabilities of the amalgamated
company and shareholders not less than nine-tenths in value of the shares in the amalgamating
company or companies become shareholders of the amalgamated company.Mergers or
amalgamations may take two forms:-Merger through Absorption:- An absorption is a
combination of two or more companies into an 'existing company'For example, absorption of
Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd. (TCL). TCL survived after merger while TFL
ceased to exist and transferred its assets, liabilities and shares to TCL. Merger through
Consolidation:- 2 or more companies consolidate into a 'new company' and a new entity is
created. For e.g, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian
Software Company Ltd, Indian Reprographics Ltd into an entirely new company called HCLtd. .
Besides, there are three major types of mergers:- Horizontal merger: Examples are formation of
Brook Bond Lipton India Ltd. through the merger of Lipton India and Brook Bond, merger of
Bank of Mathura with ICICI BankVertical merger: Reliance Gateway, a wholly owned subsidy
of Reliance Infocomm signed merged with the Flag Telecom Group. Conglomerate merger:
L&T and Voltas Ltd are examples of such mergers.

In 2010, the biggest deal was done by Reliance Communication which merged its telecom
tower business with GTL infrastructure Ltd for USD 11 billion. Dabur completed merger of
Fem Care Pharma with itself in June 2010.The amalgamation of Sangli Bank Limited with
ICICI Bank Limited occurred in 2007. BASF India Ltd has announced in September 2010,
that it has approved the Scheme of Amalgamation of BASF Coatings (India) Pvt. Ltd., BASF
Construction Chemicals (India) Pvt. Ltd. and BASF Polyurethanes India Ltd., being the
Transferor Companies with BASF India Ltd., the Transferee Company. Global Trust Bank Ltd.
had merged with the Oriental Bank of Commerce in 2004.

Acquisitions and Takeovers

An acquisition may be defined as an act of acquiring effective control by one company over
assets or management of another company without any combination of companies. Thus, in an
acquisition two or more companies may remain independent, separate legal entities, but there
may be a change in control of the companies. When an acquisition is 'forced' or 'unwilling', it is
called a takeover. In an unwilling acquisition, the management of 'target' company would
oppose a move of being taken over. But, when managements of acquiring and target companies
mutually and willingly agree for the takeover, it is called acquisition or friendly takeover. Under
the Monopolies and Restrictive Practices Act, takeover meant acquisition of not less than 25%
of the voting power in a company. While in the Companies Act (Section 372), a company's
investment in the shares of another company in excess of 10% of the subscribed capital can
result in takeovers. These do not entail full legal control.

The Tata Group is known for its acquisition spree, be it Tata Tea’s one of the oldest
acquisitions of UK-based Tetley Tea, at $400 million as early as Feb 2000; or Tata Coffee’s
buy-out of America’s best selling whole bean coffee brand Eight O’Clock Coffee at $220
million in June 2006. Tata Teleservices took over Hughes Telecom in June 2002. Tata Motors
acquired Daewoo at $100 million in March 2004. Tata Motors also acquired the businesses of
two iconic British brands – Jaguar and Land Rover – from Ford Motors for a net consideration
of $2.3 billion in June 2008, with the aim to spread its footprint globally.

In 2010, Bharti Airtel acquired Kuwait based Zain telecom’s African business for USD 10.7
billion. Reliance Industries acquired Infotel broadband for USD 1 Billion. The biggest deal in
Pharmaceutical sector was the acquisition of the generic drug unit of Piramal Healthcare by
USA based drug maker Abbot Laboratories for USD 3720 mn. In the Banking, Financial
Services and Insurance sector, biggest deal was cut by Hinduja group, when it acquired
Luxembourg based KBL European private bankers SA for USD 1.69 billion