Funding of Mergers & Takeovers

FUNDING OF MERGERS & TAKEOVERS

INTRODUCTION Growth is essential for sustaining the viability, dynamism and value enhancing capability of a company. A company can expand and/or diversify its markets internally or externally. If it cannot grow internally due to lack of physical and managerial resources, it can grow externally by mergers and acquisitions of companies engaged in same or similar industry or service sector in a convenient and inexpensive manner. However, mergers and acquisitions involve cost and can be an expensive mode if the company pays an excessive price for shares in company proposed to be merged with it. It should be kept in mind that benefits should exceed the cost of acquisition in fact. It is necessary that price may be carefully determined and negotiated so that merger enhances the value of shareholders. While valuing the cost of acquisition, it is necessary to bear in mind the fact that the entire cost of acquisition should be treated as capital cost while revenues arising out of the acquisition will only be generated over a period of time.

PROCESS OF FUNDING Mergers and takeovers may be funded by a company (i) Out of its own funds, comprising increase in paid up equity and preference share capital, for which shareholders are issued equity and preference shares or (ii) Out of borrowed funds, this may be raised by issuing various financial instruments. (iii) A company may borrow funds through the issue of debentures, bonds, deposits from its directors, their relatives, business associates, shareholders and from public in the form of fixed deposits, (iv) External commercial borrowings, issue of securities, loans from Central or State financial institutions, banks, (v) Rehabilitation finance provided to sick industrial companies under the Sick Industrial Companies (Special Provisions) Act, etc. Form of payment may be selected out of any of the modes available such as (a) Cash payment, (b) Issue of equity shares, (c) Mix of equity and cash, (d) Debt or loan stock, (e) Preference shares, convertible securities, junk bonds etc. Well-managed companies make sufficient profits and retain them in the form of free reserves, and as and when their Board of Director propose any form of restructuring,
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it is financed from reserves, i.e. internal accruals. Where available funds are inadequate, the acquirer may resort any one or more of the options available for the purpose of raising the required resources. The most prominent routes are the borrowing and issue of securities. The required funds could be raised from banks and financial institutions or from public by issue of debentures or by issue of shares depending upon the quantum and urgency of their requirements. Generally a cash rich company use their surplus funds for taking over the control of other companies, often in the same line of business, to widen their product range and to increase market share.

FUNDING THROUGH VARIOUS TYPES OF FINANCIAL INSTRUMENTS

A. FUNDING THROUGH EQUITY SHARES Equity share capital can be considered as the permanent capital of a company. Equity needs no servicing as a company is not required to pay to its equity shareholders any fixed amount return in the form of interest which would be the case if the company were to borrow issue of bonds or other debt instruments. In issue of shares, the commitment will be to declare dividends consistently if profits permit. Raising moneys from the public by issue of shares to them is a time consuming and costly exercise. The process of issuing equity shares or bonds/debentures by the company takes a lot of time. It would require several things to be in place and several rounds of discussion would take place between the directors, and key promoters having the controlling stake, between the Board of Directors and consultants, analysts, experts, company secretaries, chartered accountants and lawyers. Moreover it requires several legal compliances. Therefore planning an acquisition by raising funds through a public issue may be complicated and a long drawn process. One cannot think of raising moneys through public issue without identifying the company to be acquired.

B. PREFERENTIAL ALLOTMENT Private placement in the form of a preferential allotment of shares is possible and such issues could be organized in a much easier way rather than an issue of shares to public.

C. MERGER The most common method of acquisition is a merger where the transferee company issues shares to the shareholders of Transferor Company. A merger need no
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deployment of additional funds, either from internal accruals or from outside agencies like banks, financial institutions etc. The additional equity which is issued to the shareholders of the merging companies needs no servicing. When the company makes adequate profits and the Board of Directors, in their discretion, recommends the declaration of dividend, the shareholders get dividend on their shareholdings. The disadvantage to the shareholders of the merged company is the resultant temporary dilution in earnings per shares (EPS) and depressing of share price due to the issuance of additional shares. In the normal life of a company, equity capital is costlier than the borrowed capital, because interest on borrowed capital is a charge on the profits of the company whereas dividend on equity shares is paid out of the net profits of the company.

D. FUNDING THROUGH PREFERENCE SHARES Another source of funding a merger or a takeover may be through the issue of preference shares, but unlike equity capital, issue of preference share capital as purchase consideration to shareholder of merging company involves the payment of fixed preference dividend (like interest on debentures or bonds or) at a fixed rate. Therefore, before deciding to raise funds for this purpose, by issue of preference shares, the Board of directors of a company has to make sure that the merged company or the target company would be able to yield sufficient profits for covering discharging the additional liability in respect of payment of preference dividend. Burden of preference dividend A company funding its merger or takeover proposal through the issue of preference shares is required to pay dividend to such shareholders as per the agreed terms. While raising funds through this mode, the management of the company has to take into consideration the preference dividend burden, which the profits of the company should be able to service.

E. FUNDING THROUGH OPTIONS OR SECURITIES WITH DIFFERENTIAL RIGHTS Companies can restructure its capital through derivatives and options as a means of raising corporate funds. Indian companies are allowed to issue derivatives or options as well as shares and quasi-equity instruments with differential rights as to dividend and/or voting. Companies may also issue non-voting shares or shares with differential voting rights to the shareholders of Transferor Company. Such issue gives the companies an additional source of fund without interest cost and without an obligation to repay, as these are other forms of equity capital.

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The promoters of companies may be interested in this form of consideration as it does not impose any obligation and there is no loss of control in the case of nonvoting shares. In terms of Section 86 of the Companies Act, 1956, a company can issue shares with differential voting rights. Conditions to be satisfied for issuance of shares with differential voting rights as stated in the Companies (Issue of Shares Capital with Differential Voting Rights) Rules, 2001 are: 1. The Company has a distributable profit in terms of Section 205 of the Companies Act, 1956 for proceeding three financial years preceding the year in which it has decided to issue such shares. 2. The company has not failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend. 3. The Articles of Association of the company authorises the issuance of shares with differential voting rights. 4. The Company has not been convicted of any offence arising under the SEBI Act, 1992, Securities Contract (Regulation) Act, 1956, or FEMA, 1999. 5. The Company has not defaulted in meeting investor grievances. 6. The Company has obtained the approval of shareholders in a general meeting by passing resolution as required under the provisions of Section 94(1) (a) read with Section 94 (2) the Companies Act, 1956. 7. In case of a listed company, approval of shareholders through postal ballot has been obtained for the same. 8. The notice of the meeting at which resolution is proposed to be passed is accompanied by an explanatory statement stating: a) The rate of voting rights which the equity share capital with differential voting right shall carry. b) The scale or the proportion to which the voting rights of such class or type of shares will vary. c) The company shall not convert its equity shares with voting rights into equity shares with differential voting rights and vice-versa. d) The shares with differential voting rights shall not exceed 25% of total share capital issued. e) A member of a company holding any equity shares with differential voting rights shall be entitled to bonus shares, right shares of same class. f) The holders of the equity shares with differential voting rights shall enjoy all other rights to which the holder is entitled to excepting right to vote. F. FUNDING THROUGH SWAPS OR STOCK TO STOCK MERGERS In stock swap mergers, or stock-for-stock mergers, the holders of the target companys stock receive shares of the acquiring companys stock. The majority of mergers during the past few years have been stock-for-stock deals.

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A merger arbitrage specialist will sell the acquiring companys stock short, and will purchase a long position in the target company, using the same ratio as that of the proposed transaction. (If the purchasing firm is offering a half share of its stock for every share of the target company, then the merger arbitrageur will sell half as many shares of the purchasing firm as he or she buys of the target company.) By going long and short in this ratio, the manager ensures that the number of shares for which the long position will be swapped is equal to the number of shares sold short. When the deal is completed, the manager will cover the short and collect the spread that has been locked in. As with all mergers, stock swap mergers may involve event risk. In addition to the normal event risks, stock swap mergers involve risks associated with fluctuations in the stock prices of the two companies. The terms of the deal involve an exchange of shares and are predicted on the prices of the two companies stock at the time of the announcement, drastic changes in the shares prices of one or both of the companies can cause the entire deal to be re-evaluated.

G. FUNDING THROUGH EMPLOYEES STOCK OPTION SCHEME This option may be used along with other options. The share capital that may be raised through a Scheme of Employees Stock Option can only be a fraction of the entire issue. Hence no company can imagine of funding any scheme of merger or takeover entirely through this route.. Employees stock option scheme is a voluntary scheme on the part of a company to encourage its employees to have a higher participation in the company. Stock option is the right (but not an obligation) granted to an employee in pursuance of a scheme, to apply for the shares of the company at a pre-determined price. Suitable percentage of reservation can be made by a company for its employees or for the employees of the promoter company or by the promoter company for employees of its subsidiaries, as the need may arise. Equitable distribution of shares among the employees will contribute to the smooth working of the scheme. Only bona-fide employees of the company are eligible for shares under scheme The offer of shares to the employees on preferential basis has been misused by some companies by allotting shares to non-employees or in the joint names of employees and non-employees. The companies are therefore, advised to ensure that the shares reserved under the employees quota be allotted only to the bona fide employees, subject to the SEBI guidelines issued in this regard and the shares remaining unsubscribed by the employees may be offered to the general public through prospectus in terms of the issue, if any [Press release dated 30.1.1996]. The option granted to any employee is not transferable to any person. H. FUNDING THROUGH EXTERNAL COMMERCIAL BORROWINGS (ECBs) UNDER SECTION 6 OF FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA)

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External Commercial Borrowings (ECB) are regulated by the ECB Guidelines issued by the External Commercial Borrowing Division, Department of Economic Affairs, Ministry of Finance, Government of India as modified from time to time. External Commercial Borrowings (ECB), being capital account transactions within the meaning of the Foreign Exchange Management Act, 1999 (FEMA). They are governed by Section 6 of FEMA. ECB refers to commercial loans in the form of bank loans, buyers credit, suppliers credit, securitised instruments such as Floating Rate Notes and Fixed Rate Bonds, etc., availed from non resident lenders with minimum average maturity of 3 years. ECB can be accessed under two routes, viz., (i) automatic route; and (ii) approval route. ECB under the automatic route is permitted for investment in the real sector, industrial sector including small and medium enterprises and especially infrastructure sector. The term infrastructure has been defined as: (i) (ii) (iii) (iv) (v) (vi) power; telecommunication, railways; road including bridges; ports, seaport & airport; industrial parks; urban infrastructure (water supply, sanitation and sewerage projects).

Automatic route implies the ECB will not require approval of Reserve Bank of India or the Government of India. Corporates (Companies registered under the Companies Act) except financial intermediaries (such as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible for accessing ECB under the automatic route. Individuals, trusts, and non-profit organizations are not eligible to raise ECB. ECB can be accessed only for investment (such as import of capital goods, new projects, modernization/expansion of production units) in real sector industrial sector including small and medium enterprises (SME) and infrastructure sector in India. Limitations of ECB Route (a) Accessing ECB is not permitted under both the automatic route and the approval route for on-lending or investment in capital market or acquiring company (or a part thereof) in India by a corporate. (b) Utilisation of ECB proceeds is also not permitted in real estate. The term real estate excludes development of integrated township. (c) End uses of ECBs for working capital, general corporate purpose and repayment of existing rupee loans are also not permitted. ECBs are permitted by the Government as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment. Utilisation of ECB proceeds is permitted in the first stage; acquisition of shares in the disinvestments process and also in the mandatory second stage; offer to the public under the Governments disinvestments programme of PSU shares.

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I. INDIAN DEPOSIT RECEIPTS Deposit receipts represent equity shares. In the Indian context, shares are issued in accordance with the provisions of the Companies Act, 1956 and the Guidelines and Regulations of the Securities and Exchange Board of India (SEBI). An Indian company may be promoted by foreign nationals or foreign bodies corporate or both. In such a case, the Indian company even though promoted by a foreign individual and/or entity could issue shares to the Indian public in accordance with the applicable legal provisions in India viz., the said Act, Guidelines and Regulations. However a company incorporated say, in a particular state in the United States of America, cannot issue shares in the Indian market. Such companies could only issue deposit receipts which will be known as Indian Deposit Receipts. These receipts will represent certain number of shares issued by the said foreign company in their country in the name of a depository in India which in turn issues the deposit receipts which are tradable. Similar to such an issue, an Indian company cannot directly issue shares or other securities in America or in a country in Europe except through the mechanism of depository receipts. A Depository Receipt is a negotiable certificate that usually represents a companys publicly traded equity or debt. Depository Receipts are created when a broker purchases the companys shares on the home stock market and delivers those shares to the Depositorys local custodian bank, who then instructs the depository bank, to issue Depository Receipts.

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J. GLOBAL DEPOSITORY RECEIPTS (GDRs) A GDR is a dollar denominated instrument tradable on a stock exchange in Europe or other countries outside USA. The concept of GDR, original to the developed countries, now has gained popularity even in developing countries like India. The major benefit that accrues to an investor from GDR is the collection of issue proceeds in foreign currency which may be utilized for meeting foreign exchange component of project cost, repayment of foreign currency loans, meeting commitments overseas and similar purposes. The other benefits accruing to an investor from GDR issue are firstly, that investor does not have to bear any exchange risk as a GDR is denominated in US dollar with equity shares comprised in each GDR denominated in Rupees. Secondly, investor reserves the right to exercise his option to convert the GDR and hold the equity shares instead. It facilitates rising of funds of market related prices of minimum cost as compared to a domestic issue and permits raising of further equity on a future date for funding of projects like expansion or diversification through mergers and takeovers etc.

K. AMERICAN DEPOSITORY RECEIPTS (ADRs) An ADR is a certificate that represents a non-US companys publicly traded shares or debt. ADRs trade freely like any other US security as they are priced and quoted in US dollars. They can be traded on either an exchange or over the counter market and settle according to US standards. ADR is a tradable instrument, equivalent to a fixed number of shares, which is floated on overseas markets. ADR issues can be made at four levels depending on the preference of the company. The norms for each level differ and are based on the specific criteria to be satisfied by the issuer. Let us take Infosys example trades on the Indian stock at around Rs.2000/-This is equivalent to US$ 40 (assume for simplicity). Now a US bank purchases 10000 shares of Infosys and issues them in US in the ratio of 10:1. This means each ADR purchased is worth 10 Infosys shares. Quick calculation means 1 ADR = US $400. Once ADR are priced and sold, its subsequent price is determined by supply and demand factors, like any ordinary shares. The features of ADRs are as follows: 1. This instrument permits the foreign investor to access non-US market for investment thereby insulating him from exchange risk, as an ADR is denominated in dollars and dividends are also paid in dollars.

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2. ADRs are listed on the New York Stock Exchange or Over the Counter Exchange in the USA. ADRs attract a much wider investor base than the GDRs, since pensions funds and individual investors are permitted to invest in them. 3. The size of the ADR issue can be expanded or contracted according to demand as depository banks can issue or withdraw corresponding shares in the local market. GDR is a onetime issue and can be contracted in size only if investors decide to redeem. 4. ADR issue is more expensive than a GDR issue. 5. ADR issue requires drawing up the accounting statements in accordance with the stringent requirements of the Securities and Exchange Commission and US GAAP.

Depository Receipts

Indian Depository Receipts A company incorporated in a particular state in the United States of America, cannot issue shares in the Indian market. Such companies could only issue deposit receipts which will be known as Indian Deposit Receipts. These receipts will represent certain number of shares issued by the said foreign company.

Global Depository Receipts A bank certificate issued in more than one country for shares in a foreign company. Offered for sale globally through the various bank branches. Shares trade as domestic shares

American Depository Receipts A negotiable certificate issued by a U.S. bank. Represents a specified number of shares of a foreign company.

ADRs are denominated in U.S. dollars.

Limitation on utilisation of proceeds of ADR/GDR issue for funding Mergers/ Takeovers Any money that is raised from a foreign source whether in the form of equity or debt, whether as a foreign direct investment or by way of an external commercial borrowings, compliance of the provisions of Foreign Exchange Management Act is essential. These are capital account transactions and therefore they have to accordingly understood. Specifically in respect of moneys raised through issue of ADRs/GDRs, there are certain restrictions with regard to end use of funds so raised. The following are to be incurred within one year from the date of Issue of GDR:
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1. Financing capital goods imports. 2. Financing domestic purchase/installation of plant, equipment and buildings. 3. Prepayment or scheduled repayment of earlier external commercial borrowing. 4. Making investments abroad where these have been approved by competent authorities. Companies would be required to submit quarterly statements of utilisation of funds duly certified by their auditors. The issuer companies would be required mandatorily to retain the Euro issue proceeds abroad to be repatriated as and when expenditure for the approved end uses (including 15% earmarked for general corporate restructuring purposes) are incurred. ADRs and GDRs are identical from a legal, operational, technical and administrative standpoint.

L. FUNDING THROUGH FINANCIAL INSTITUTIONS AND BANKS Funding of a merger or takeover with the help of loans from financial institutions, banks etc, has its own merits and demerits. Takeover of a company could be achieved in several ways and while deciding the takeover of a going concern, there are matters such as the capital gains tax, stamp duty on immovable properties and the facility for carrying forward of accumulated losses. With parameters playing a critical role, the takeover should be organized in such a way that best suits the facts and circumstances of the specific case and also it should meet the immediate needs and objectives of the management. If borrowings from domestic banks and financial institutions have been identified as the inevitable choice, all the financial and managerial information must be placed before the banks and financial institutions for the purpose of getting the necessary resources. The advantage of funding is that the period of such funds is definite which is fixed at the time of taking such loans. Therefore, the Board of the company is assured about continued availability of such funds for the pre-determined period. On the negative side, the interest burden on such loans, is quite high which must be kept in mind by the Board while deciding to use borrowed funds from financial institution. Such funding should be thought of and resorted to only when the Board is sure that the merged company or the target company will, give adequate returns i.e., timely payment of periodical interest on such loans and re-payment of the loans at the end of the term for which such loans have been taken. However, in the developed markets, funding of merger or takeover is not a critical issue. There are various sources of finance available to an acquirer. In the Indian market, it was not easy to obtain takeover finance from financial institutions and banks because they are not forthcoming to finance securities business. Takeover involves greater risk. There is no other organised sector to provide finance for takeover by a company.
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Justice P.N. Bhagwati Committee on takeovers in its report of May 2002 has recommended that Banks/Financial Institutions are to be encouraged to consider financial takeovers. There are two aspects in it. (i) The first one relates to cost of acquiring ownership over the assets. If it is a going concern, the shares of the company could be purchased. In that process, the acquired entity might become a wholly owned subsidiary. Funding the acquisition would mean the funds required for paying up the consideration payable to the sellers of those shares. This will be worked on the basis of the net worth of the acquired entity. In addition to the said cost, there might be a huge requirement for funding the operations, modernization, up gradation, installing balancing equipments, removal of bottlenecks and a host of other requirements. Hence the borrowings would be required for meeting such cost also. The acquisition may also require rehabilitation or restructuring scheme implying a meeting with existing secured creditors and major unsecured creditors. Care must be taken to ensure that the existing revenue streams are not affected due to the proposed acquisition. The combined net worth, combined financial projections and revenue streams might also be needed for persuading the banks and financial institutions to pick up a stake in the acquisition.

M. FUNDING THROUGH REHABILITATION FINANCE Sick industries get arranged marriage through BIFR with healthy units with financial package to the acquirer from the financial institutions and banks having financial stakes in the acquiree company to ensure rehabilitation and recovery of dues from the acquirer. BIFR has been arranging such takeover from time to time in which creditor financial institutions and banks have been providing consortium financial packages in promoting mergers. Merger or takeover may be provided for in a scheme of rehabilitation under the Sick Industrial Companies (Special Provisions) Act, 1985. Steps involved in Rehabilitation Finance 1. The Sick Industrial Companies (Special Provisions) Act, 1985 provides for reference to the Board for Industrial and Financial Reconstruction (BIFR) of a sick industrial company. 2. Once a reference is made, BIFR will appoint an operating agency. 3. Such operating agency will do an enquiry and will also help in preparation of rehabilitation scheme. 4. Such scheme may provide measures necessary for rehabilitation of the sick company, direct the preparation of a rehabilitation scheme, which may provide, inter alia, for (i) rehabilitation finance for the sick company; (ii) merger of the sick company with a healthy company or merger of a healthy company with the sick company; (iii) takeover of the sick company by a healthy company;

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(iv) Such other preventive, ameliorative and remedial measures as may be appropriate. The scheme is prepared by the operating agency, and after the same is sanctioned becomes operative and binding on all the concerned parties including the sick company and other companies amalgamating, merging, the amalgamated or the merged companies.

N. FUNDING THROUGH LEVERAGED AND MANAGEMENT BUYOUTS There are various options available for the revival of a sick company. One is buyout of such a company by its employees. This option has distinct advantages over Government intervention and other conventional remedies. Buyout by employees provides a strong incentive to the employees in the form of personal stake in the company. The employees become the owners of the company by virtue of the shares that are issued and allotted to them. Moreover, continuity of job is the greatest motivating force which keeps them on their toes to ensure that the buyout succeeds. Such a buyout saves mass unemployment and unrest among the working class. Relations between the workers management and the employees are expected to be cordial without any break, strike or other such disturbing developments. Hence chances of success are more. However, such a buyout can be successful only if necessary financial support is extended by the Government or the financial institutions and banks. Management Buyout (MBO) A Management Buyout (MBO) is simply a transaction through which the incumbent management buys out all or most of the other shareholders. The management may take on partners, it may borrow funds or it can organize the entire restructuring on its own. A MBO begins with arrangement/rising of finance. Thereafter, an offer to purchase all or nearly all of the shares of a company not presently held by the management has to be made which may necessitate a public offer and even delisting. Consequent upon this, restructuring may be affected and once targets have been achieved, the company can go public again. Process involved in MBO 1. The team will be constituted which is known as management team. 2. They will appoint a team manager from amongst the members of the management team. 3. Appointment of financial consultant. 4. Assessment of the viability or financial suitability. 5. Approval to pursue for MBO in the management team meeting. 6. Evaluation and finalisation of maximum seller price. 7. Formulation of business plan. 8. Final selection of legal consultants and also lead investors. 9. Selection of auditors. 10. Negotiations of best equity deal. 11. Final purchase of shares from the negotiated deal.

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Leveraged Buyout Leveraged buyout is defined as the acquisition by a small group of investors, financed through borrowings. This acquisition may be by the way of all stocks or assets of a public company. The buying group forms a shell company to act as a legal entity making the acquisition. The buying group may enter into the stock purchase deal or asset purchase deal. Under the stock purchase deal, the shareholders of the target company will sell their shares to the buying group and the two companies will be merged. Under the asset purchase deal, the target company sells its assets to the buying group. This will aim at the anonymous increase in the market value to the owners of the company before and after the restructuring. The LBOs differ from ordinary acquisitions in two ways; 1. A large fraction of purchase price is debt financed through junk bonds 2. The shares of LBOs are not traded on open markets. In a typical LBO programme, the acquiring group consists of a small number of persons/organisations/buyout specialists etc. This buyer group acquires all or most of the outstanding shares of the target firm with the help of certain financial instruments like high yield high risk debt instruments, bridge financing etc. An attractive candidate of LBO should have following attributes: 1. It must have a good position in industry with sound profit history. 2. The firm should have a relatively low level of debt and high level of bankable assets. 3. It must have stable and predictable cash flows and adequate working capital. The buyout group may or may not include the current management of the target company. If it does so, it may be regarded as MBO. Case Law on Leveraged Buyout In Navnit R. Kamani v. R.R. Kamani, two schemes of rehabilitation came before the BIFR for consideration and approval. One of the schemes was presented by a shareholder holding 24% shares in the company and the other scheme was submitted by the workmens union of the company. When the two schemes were viewed in juxta-position, there was no doubt that the scheme presented by the applicant shareholder appeared in a rather poor light. The BIFR sanctioned the scheme which was presented by the workers union because, in the opinion of the BIFR, that scheme was more suited for the revival of the company. The matter went to the Supreme Court. Turning to the merits of the scheme presented by the workers and sanctioned by BIFR, it was considered to be feasible and economically viable by experts. It envisaged the management by a Board of directors consisting of fully qualified experts and representatives of banks, Government and employees.
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The scheme had the full backing of the nationalised banks and the encouragement from the Central and State Governments which had made commitments for granting tax concessions. The backing and the concessions were forthcoming essentially because it was a scheme framed by the employees who themselves were making tremendous wage-sacrifice and trying to salvage the company which has been almost wrecked by others. The above decision of the Supreme Court brought about a significant change in workers attitude towards their own role in the revival and rehabilitation of sick industrial companies, a change from collective bargainers to collective performers. In the case before the Supreme Court, the facts were quite favourable for the workers of the company. Though the workers can, through collective effort, achieve the objective of reviving sick industrial units, their own stakes being no less, yet they need all the help and encouragement from the Government, financial institutions and banks for sustained efforts for revival and rehabilitation. Change in attitude of workers unions in such an endeavour is all the more important.

O. HYBRID FUNDING The term hybrid does not find a mention anywhere in the Companies Act, 1956 or the rules and regulations framed there under. It is also not a term used in business, trade and industry. The dictionary meaning of the term hybrid means anything derived from diverse sources or composed of elements of different or inconsistent kinds. In the context of funding of mergers and takeovers through various types of financial instruments such as equity capital, preference shares, debentures, bonds, external commercial borrowings, ADR, GDR, takeover finance, derivative contracts etc. the term hybrid means a combination of financial instruments which may enable a company to raise funds for financing a merger or takeover. Therefore, depending upon the nature of transaction and the convenience of the shareholders, a company may find its programme of merger or takeover by resorting to issuing a variety of financial instruments in order to collect sufficient finance for successfully implementing its proposal.

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