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Merger and Acquisition in India

Merger and Acquisition in India

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Published by sadanand
This document could be helpful for people who are involved in merger and acquisitions in India as it shows the procedures to be followed in a M& A.
This document could be helpful for people who are involved in merger and acquisitions in India as it shows the procedures to be followed in a M& A.

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Published by: sadanand on Sep 04, 2009
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Merger and Acquisition in India
Mergers and acquisitions (M&A) refers to the aspect of corporate strategy,corporate finance and management dealing with the buying, selling andcombining of different companies that can aid, finance, or help a growingcompany in a given industry grow rapidly without having to create anotherbusiness entity.An acquisition, also known as a takeover or a buyout, is the buying of onecompany (the ‘target’) by another. The acquisition process is very complex and various studies shows that only50% acquisitions are successful.An acquisition may be friendly or hostile. In a friendly takeover a companiescooperate in negotiations. In the hostile takeover, the takeover target isunwilling to be bought or the target's board has no prior knowledge of the offer.Acquisition usually refers to a purchase of a smaller firm by a larger one.Sometimes, however, a smaller firm will acquire management control of a largeror longer established company and keep its name for the combined entity. Thisis known as a reverse takeover.Although merger and amalgamation mean the same, there is a small differencebetween the two. In a merger one company acquires the other company and theother company ceases to exist. In an amalgamation, two or more companiescome together and form a new business entity.
Governing Law:
 The Companies Act, 1956 does not define the term 'Merger' or 'Amalgamation'.It deals with schemes of merger/ acquisition which are given in s.390-394 'A',395,396 and 396 'A'.
Classifications of mergersHorizontal merger
– is the merger of two companies which are in produce of same products. This can be again classified into Large Horizontal merger andsmall horizontal merger.
 
Horizontal merger helps to come over from the competition between twocompanies merging together strengthens the company to compete with othercompanies. Horizontal merger between the small companies would not effectthe industry in large. But between the larger companies will make an impact onthe economy and gives them the monopoly over the market. Horizontal mergersbetween the two small companies are common in India. When large companiesmerging together we need to look into legislations which prohibit the monopoly.
Vertical merger
is a merger between two companies producing differentgoods or services for one specific finished product. Vertical merger takesbetween the customer and company or a company and a supplier. IN this amanufacture may merge with the distributor or supplier of its products. Thismakes other competitors difficult to access to an important componet of product or to an important channel of distribution which are called as "verticalforeclosure" or "bottleneck" problem.Vertical merger helps to avoid sales taxesand other marketing expenditures.
Market-extension merger
- is a merger of two companies that deal in sameproducts in different markets. Market extension merger helps the companies tohave access to the bigger market and bigger client base.
Product-extension merger
– takes place between the two or more companies which sells different products but related to the same category. This type of merger enables the new company to go in for a pooling in of their products so asto serve a common market, which was earlier fragmented among them. Thismerger is between two companies that sell different, but somewhat relatedproducts, in a common market. This allows the new, larger company to pooltheir products and sell them with greater success to the already commonmarket that the two separate companies shared. The product extension merger allows the merging companies to group togethertheir products and get access to a bigger set of consumers. This ensures thatthey earn higher profits.
 
Conglomeration
- Two companies that have no common business areas. Aconglomeration is the merger of two companies that have no related products ormarkets. In short, they have no common business ties.Conglomerate merger in which merging firms are not competitors, butuse common or related productionprocesses and/or marketing and distributionchannels.
Congeneric merger
:
between
 firms 
in the same general
buthaving no
 mutual 
buyer-seller
, such as a merger between a
anda
.A
 
merger in which one firm acquires another firm that is in thesame general industry but neither in the same line of businessnor a supplier or customer.
Purchase mergers
- this kind of merger occurs when one company purchasesanother. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable.Acquiring companies often prefer this type of merger because it can providethem with a tax benefit. Acquired assets can be written-up to the actualpurchase price, and the difference between the book value and the purchaseprice of the assets can depreciate annually, reducing taxes payable by theacquiring company.
Consolidation mergers
- With this merger, a brand new company is formedand both companies are bought and combined under the new entity. The taxterms are the same as those of a purchase merger.A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an IPO.
Accretive mergers
are those in which an acquiring company's earnings pershare (EPS) increase. An alternative way of calculating this is if a company witha high price to earnings ratio (P/E) acquires one with a low P/E.

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