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CHAPTER 1
⇒ Introduction of Topic
⇒ Nature and Scope of
the Study
⇒ Objectives of the
study
CHAPTER 2
⇒ Concept of
merger/amalgamation
m
s
c o
.
⇒ Concept of
a
acquisitions/takeovers
⇒ Difference between
m
merger & acquisition
aC H A P T E R 3
y n
d ⇒ TATA-CORUS
tu
acquisition – the
biggest Indian
S Acquisition
CHAPTER 4
⇒ Conclusion &
Suggestions
BIBLIOGRAPHY
• Books
• Web References
• Case Laws
3 | corporate law
m
c o
.
a
m – 1
Chapter
a
yn
d
tu
S
4 | corporate law
INTRODUCTION
yn
the result of the legal operation, for shares in the other or a third
company.
d
1
tu
Merger is also known as amalgamation of two or more
S
companies which means mixing up or uniting together or one
company blending with the other company to carry on their
business as a third company.
1
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd.
5 | corporate law
company or a public quoted company or a private company
owning or controlling another public quoted company.
m
The largest Indian takeover of an foreign company was held on
o
.c the Anglo Dutch
January 31,2007 in which Tata Steel Limited (Tata Steel), one of
a
the leading steel producers in India, acquired
m
steel producer Corus Group Plc (Corus) for US$ 12.11 billion (€
8.5 billion). a
n by an Indian company, Tata Steel
ytakeover
d
And after this biggest
t u
emerged as the fifth largest steel producer in the world after the
S
acquisition. The acquisition gave Tata Steel access to Corus'
strong distribution network in Europe.
6 | corporate law
Nature and Scope of Project
m
dealing them in depth and then gets to the acquisition of TATA-
CORUS.
c o
.
a
m
a
yn
d
tu
S
7 | corporate law
Objective of Study
There are four main objectives to carry out the project work
which are as follows:
8 | corporate law
m
c o
.
a
m
a
yn
d
tu
S Chapter – 2
9 | corporate law
Concept of Merger/amalgamations
what is amalgamation?
t u
‘combination’. Judging from the context and from the marginal
S
note of the section 394 which appears in chapter V relaying to
the arbitration, compromises, arrangements and reconstructions,
the primary object of amalgamation of one company with
another is to facilitate the reconstruction of the amalgamating
companies and this is a matter which is entirely left to the body
of shareholders, (and) essentially an affair related to the internal
2
Bank of India Ltd. v. Ahmedabad Mfg & Calico Printing Co., (1972) 42 Comp Cas 211.
Industrial Credit & Investment Corpn of India v. Financial & Management Services Ltd., AIR
1998 Bom 305.
3
(1968) 38 Comp Cas 197, 204 Mad.
Reliance Jute Industries Ltd, Re. (1983) 53 Comp Cas 591 Cal
10 | c o r p o r a t e l a w
administration of the transferor company. The decision of the
body of the shareholders not ought to be lightly interfered with.
.c
In Weinberg and Blank on Takeovers and Mergers, fourth edition,
a
there is no definition of the term “amalgamation”. The authors
m
a
have probably used the term “merger” as similar to that of
“amalgamation.”
y n
There are three dtypes of amalgamations, which are if following
types: tu
S
Horizontal Mergers: it is a merger which involves the
1.
merger of two or more companies which are producing
essentially the same products or services, which compete
directly with each other.
11 | c o r p o r a t e l a w
who is producing the parts for them, then that merger is
called as the vertical merger.
m
Income-Tax Act, 1961. There are references made in relation to
the “amalgamations” in section 394, 396 & 396A of the
c o
Companies Act. .
a
•
m
Section 394: discuss the amalgamation while dealing with
a Company Law Tribunal.
n
the powers of the National
y
•
dto amalgamate companies in public interest
Section 396 &396A: deals with the powers of the Central
t u
Government
S
and the maintenance of records by the amalgamated
companies.
12 | c o r p o r a t e l a w
more undertakings to a new company, or by the transfer of one
or more undertakings to an existing company. Strictly,
amalgamation does not, it seems, cover the mere acquisition by
a company of the share capital of other companies which remain
in existence and continue their undertakings, but the context in
which the term is used may show that is intended to include such
as acquisition.”5
n
applicable to public companies whether listed or not. However
y
dIndia and provides that where an application is
section 900 is very much similar to that of the section 394 of the
t u
Companies Act of
S
made to the court for sanctioning a compromise or arrangement
with the members or creditors for the purpose of either
amalgamation or two or more companies or the whole or any
part of the undertaking or the property is to be transferred to
another company, the court has specific power to enable such a
reconstruction of the company or either.
5
The Halsbury’s Laws of England, Vol. VII(2) para 1461 page 1103
13 | c o r p o r a t e l a w
Objectives of Corporate Amalgamations:
m
2. To reduce the gestation period for new businesses which
o
.c
would be complementary to the existing business of the
company;
a
m
3. To compete globally;
a
4. To put to the use n
y the liquidity available with the company
tu
S
5. To acquire and maximize the available managerial skill to
increase the profitability;
6
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd.
14 | c o r p o r a t e l a w
Concept of Acquisition
What is Acquisition?
15 | c o r p o r a t e l a w
As earlier said that acquisition is also known as takeover. Hence
we can say that Acquisition is to takeover of a company by
another company.
.c
effected by agreement with the holders of the majority of the
a
share capital of the company being acquired.
m
a
y nby the public generally, the take-over
Where the shares are held
maybe effected: d
t u
S
1. By agreement between the acquirer and the controllers of
the acquired company.
16 | c o r p o r a t e l a w
public company whose shares are listed on a stock exchange, in
contrast to the acquisition of a private company.
1. Friendly takeovers:
m
o
In a private company, because the shareholders and the board
are usually the same people or closely c
another, private acquisitions are a
. connected with one
usually friendly. If the
shareholders agree to sell the m company, then the board is
usually of the same mind ora
n sufficiently under the orders of the
2. Hostile takeovers:
17 | c o r p o r a t e l a w
bidder makes the offer without informing the target company's
board beforehand.
m
enough stock on the open market, known as a creeping tender
c o
offer, to effect a change in management. In all of these ways,
management resists the acquisition but it .
a is carried out anyway.
t u
the target company. It can find out exactly what it is taking on
S
before it makes a commitment. But a hostile bidder knows about
the target by only the information that is publicly available, and
so takes a greater risk. Also, banks are less willing to back hostile
bids with the loans that are usually needed to finance the
takeover. However, some investors may proceed with hostile
takeovers because they are aware of mismanagement by the
board and are trying to force the issue into public and potentially
legal scrutiny.
18 | c o r p o r a t e l a w
3. Reverse takeovers:
y
from the investing n strategy stated in its admission
d
document or, where no admission document was produced
S
strategy stated in its pre-admission announcement or,
depart substantially from the investing strategy
19 | c o r p o r a t e l a w
How takeover goes: a flow chart:8
m
c o
.
Take-over saga
a
begins
m
Appoints a
yn
Merchant Banker Take-over
d
who administers process
tu
take-over process
S
Public announcements
File with SEBI
& Stock
Exchange
Cash with
Deposit escrow amount in the form of bank – bank
gurantee
security
English &
Publication of public announcement in newspapers
Hindi National
8
daily regional
P. Mohana Rao (editor), Mergers and Acquisitions of Companies (2000), New
Delhi: Deep & Deep Publications Pvt. Ltd. language
20 | c o r p o r a t e l a w
Letter of offer File with SEBi
send to Target
Company, Stock
Exchange and
Shareholders
Indian law:
m
o
.c Board of India
The subject of takeover is been dealt in both The Companies Act,
a
1956 (CA 1956) and The Securities & Exchange
m
(Substantial Acquisition of Shares and Takeover) Regulation,
1997 (SEBI Takeover Code). a
yn
d
The CA Act deals with the power of the company to acquire
tu
shares of another company generally (section 372A), and
S
specifically in relation to acquiring shares from persons who did
not sell or have not agreed to sell shares held by them,
notwithstanding approval of the scheme or contract for
acquisition of shares, by shareholders owning 90% and over of
the shares (section 395). The company being acquired could be
either a public quoted company or a private limited company.
21 | c o r p o r a t e l a w
and impose certain requirements of disclosure and
transparency.9
The SEBI rules could deal with the law relating to substantial
m
o
acquisition of shares or control of a public quoted company
c
.
(listed company) or an unquoted public limited company
a
(unlisted company) including a foreign registered company,
m
a
which owns or control the listed company.
S
against this in the UK the takeover regulation is in the form of a
City Code, which is not a statutory regulation. Since the initial
code was formed in 1959 by a working part in City of London, it
has come a long away, but still regulates the takeover and
merger of the companies. The City Code being a code has the
flexibility to modify its rule to achieve the result – ensure fair and
equal treatment of all shareholders in relation to takeovers and
9
Gurminder Kaur, Corporate Mergers and Acquisition (2005), New Delhi: Deep
& Deep Publications Pvt. Ltd.
22 | c o r p o r a t e l a w
provision of an orderly framework within which takeovers are
conducted.
USA Regulations:
m
US takeover law is influenced by a mixture of federal and state
o
laws. The Securities and Exchange Act, 1934 and the rules made
c
.
there under provide for strict disclosures and further provide for
a
making mandatory tender offer in the event of acquisition of
m
a
shares beyond certain prescribed limit. The takeover laws in USA
yn
are statutory regulations.
d
t u
S
Advantages and Disadvantages of Takeover/Acquisition
Advantages:
23 | c o r p o r a t e l a w
3. Profitability of target company
4. Increase market share
5. Decrease competition (from the perspective of the
acquiring company)
6. Reduction of overcapacity in the industry
7. Enlarge brand portfolio (e.g. L'Oréal's takeover of
Bodyshop)
8. Increase in economies of scale
9. Increased efficiency as a result of corporate
synergies/redundancies (jobs with overlapping
responsibilities can be eliminated, decreasing operating
m
costs)
c o
.
Disadvantages:
a
m
a
1. Reduced competition and choice for consumers in oligopoly
yn
markets. (Bad for consumers, although this is good for the
d
companies involved in the takeover)
t u
2. Likelihood of job cuts.
S
3. Cultural integration/conflict with new management
4. Hidden liabilities of target entity.
5. The monetary cost to the company.
24 | c o r p o r a t e l a w
leverage themselves into a high risk position. High leverage will
lead to high profits if circumstances go well, but can lead to
catastrophic failure if circumstances do not go favorably. This
can create substantial negative externalities for governments,
employees, suppliers and other stakeholders when the Black
Swan appears and the "fit hits the shan".10
a
generally governed by its memorandum and
m
certain restrictions placed by the CA. section 372 as it stood prior
a
to amendment by the companies (amendment) act, 1988,
y
prohibited intercorporateninvestments in shares in excess of 10%
d
of the subscribes capital of the company whose shares are being
purchased oru
t subscribes and subject to an overall limit in respect
S in all bodies corporate of 30% of the subscribes
of investment
capital of the investing company. Investment could be made in
excess to these limits, if the investment is approved by the
shareholders by a resolution and further approved by the central
government.
10
http://en.wikipedia.org/wiki/Takeover
25 | c o r p o r a t e l a w
31st October, 1998 and instead a new provision section 372A
introduced.
yn
In considering takeovers, the board of directors of a company will
d
tu
need to comly with these provisions in addition to the provisions
of SEBI Takeover Code and other law or regulations
S
11
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations
Takeovers & Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd
26 | c o r p o r a t e l a w
Difference between Merger and Acquisition:12
m
o
.c
Although the terms merger and acquisition are often used as
though they are synonymous, they mean
a different things. The
m
differences between a merger and acquisition are important to
a
value, negotiate, and structure a client's transaction. Mergers
and acquisitions both n
y involve one or multiple companies
d
purchasing all or part of another company. The main distinction
S
A merger happens when two firms; often of about the same size,
agree to move forward and exist as a single new company rather
than remain separately owned and operated. This kind of action
is more specifically referred to as a "merger of equals." Mergers
are often financed by a stock swap, in which the stock owners in
both companies receive an equivalent quantity of stock in the
new company. The stocks of both companies are surrendered
12
http://en.wikipedia.org/wiki/Mergers_and_acquisitions
27 | c o r p o r a t e l a w
and new company stock is issued in its place. On the other hand,
when one company takes over another company and clearly
establishes itself as the new owner, the purchase is called an
acquisition. Legally, the target company ceases to exist, the
buyer swallows the business and the buyer's stock continues to
be traded. Acquisition refers to two unequal companies
becoming one and the financing can involve a cash and debt
combination, all cash, stocks, or other equity of the company.
m
of both of their companies. When the deal is unfriendly - that is,
o
.c
when the target company does not want to be purchased, it is
regarded as an acquisition.
a
m
a
yn
Whether a purchase is considered a merger or an acquisition, in
reality depends d
u on whether the purchase is friendly or hostile
and how ittis announced. In other words, the actual difference
lies inS
how the purchase is communicated to and received by the
target company's board of directors, shareholders, and
employees.
28 | c o r p o r a t e l a w
m
c o
.
a
m
a
yn
d
tu
S
Chapter – 3
29 | c o r p o r a t e l a w
m
o
.c
TATA-CORUS Acquistion – Biggest Indian Acquisition:
30 | c o r p o r a t e l a w
as the world's best steel producer by World Steel Dynamics in
2005. The company is listed on BSE and NSE; and employs about
82,700 people (as of 2007).
m
Corus was formed from the merger of Koninklijke Hoogovens N.V.
c o
with British Steel Plc on 6 October 1999. It has major integrated
.
a
steel plants at Port Talbot, South Wales; Scunthorpe, North
m
Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and
a
IJmuiden in the Netherlands. It also has rolling mills situated at
y n
Shotton, North Wales (which manufactures Colorcoat products),
d
Trostre in Llanelli, Llanwern in Newport, South Wales, Rotherham
31 | c o r p o r a t e l a w
A war between two giants (TATA Steel and Brazilian steel
maker Companhia Siderúrgica Nacional i.e. CSN) to but
another giant:
m
in Dubai, in July 2006. On October 17, 2006, Tata Steel made an
o
.c to the offer on
offer of 455 pence a share in cash valuing the acquisition deal at
a
US$ 7.6 billion. Corus responded positively
October 20, 2006.
m
a
ynTata Steel's proposal for acquisition.
In November 2006, Brazilian steel maker Companhia Siderúrgica
d
Nacional (CSN) challenged
t u
They countered Tata Steel's offer of 455 pence per share by
S
offering 475 pence per share of Corus.
In the light of CSN offer Corus announced that it would defer its
extraordinary meeting of shareholders to December 20, 2006
from December 4, 2006 in order to allow counter offers from
TATA steel and CSN.ABN Amro and Deutsche Bank are backing
Tata Steel, while CSN's advisors are Goldman Sachs, UBS and
Barclays Capital.
32 | c o r p o r a t e l a w
Tata Steel Ltd. of India bid top bid to acquire Corus Group PLC of
the United Kingdom at 6.2 billion Pounds ($12.1 billion). In the
auction, Companhia Siderurgica Nacional last bid was 603 Pence
($11.82billion) per share, while Tata Steel Ltd. final bid was 608
Pence per share, 5 Pence higher.
Finally, on January 31, 2007 TATA Steel acquired the Corus at 6.2
billion pounds ($12.1 billion) in counter to that of $11.82 by CSN
and become the fifth largest producer of steel in the world and
second largest in the Europe.
m
o
.c
Final outlook of the TATA-CORUS Acquisition:
a
m
This acquisition was the biggest overseas acquisition by any
a
Indian company. TATA Steel emerged as the Fifth largest
producer of steel in the n
y world and Second largest in Europe. This
d
acquisition in turn provide TATA Steel Corus strong distribution in
Europe.
tu
S
Corus' expertise in making the grades of steel used in
automobiles and in aerospace could be used to boost Tata
Steel's supplies to the Indian automobile market. Corus in turn
was expected to benefit from Tata Steel's expertise in low cost
manufacturing of steel. However, some financial experts claimed
that the price paid by Tata Steel (608 pence per share of Corus)
for the acquisition was too high.
33 | c o r p o r a t e l a w
Corus had been facing tough times and had reported a
substantial decline in profit after tax in the year 2006. Analysts
asked whether the deal would really bring any substantial
benefits to Tata Steel. Moreover, since the acquisition was done
through an all cash deal, analysts said that the acquisition would
be a financial burden for Tata Steel.
c o
.
a
"Indian steel companies are on a consolidation mode. The Tata-
m
a
Corus deal has set many records. So far, the only $1 billion-plus
yn
deal was done by ONGC, and it's the first milestone for India Inc,
d
with the Tata deal crossing $10 billion mark. It's a landmark deal
t u
since an Indian company has taken over an international
S
company three times its size.” 14
34 | c o r p o r a t e l a w
group. Members of the integration committee from Tata Steel
include managing director B Muthuraman, deputy managing
director (steel) T Mukherjee, and chief financial officer Kaushik
Chatterjee. The Corus group is represented in the committee by
CEO Phillipe Varin, executive director (finance) David Lloyd, and
division director (strip products) Rauke Henstra.
The acquisition by Tata amounted to a total of 608 pence per
ordinary share or ₤6.2 billion (US $12 billion) which was paid in
cash. First of all, the general assumption is that the acquisition
was not cheap for Tata. The price that they paid represents a
very high 49% premium over the closing mid market share price
m
o
of Corus on 4 October, 2006 and a premium of over 68% over
a
period. Moreover, since the deal was paid for in cash
m
automatically makes it more expensive, implying a cash outflow
aof £1.84 billion.
yn
from Tata Steel in the amount
35 | c o r p o r a t e l a w
m
c o
.
a
m
a
yn
d
tu
S Chapter – 4
36 | c o r p o r a t e l a w
Conclusion
Steel prices, raw material supplies and interest costs on the $8-
billion debt that is being raised to fund the deal. Soon he may
m
also have to deal with the sensitive issue of possible job There is
c o
no doubt that Tata has pulled off a coup — Corus makes nearly
four times more steel than Tata Steel. .
a Together, the combine
m
becomes the fifth largest producer in the world and the second in
a
Europe. But to make the most of the deal, Tata has to manage
d
There are also the usual sets of integration challenges that come
S
work is just beginning.
37 | c o r p o r a t e l a w
The only blip, though, was the way the stock markets reacted.
Tata Steel has lost a billion dollars in market capitalization since
it first announced its intention to buy Corus in October last year.
(The BSE Sensex rose 18 per cent during the same period.) The
market perception is that the Tata Group paid too much for this
acquisition. Several brokerage houses have pointed out that the
deal implies a high enterprise value/ earnings before interest,
taxes, depreciation and amortization (EV/EBITDA) multiple of 9
for Corus versus 4.6 for Tata Steel. (L.N. Mittal paid 5.8 times
EBITDA for Arcelor.) Ratan Tata disagrees: “We believe that,
looking back in time, the price today will prove to be one that
m
o
was worthwhile because the price of steel companies is likely to
c
be even higher in the coming year.”
.
a
m
But tying up the funding is the immediate priority. The Corus
a
acquisition is being routed through a special purpose vehicle
y n
(SPV) called Tata Steel, UK. (A similar structure was used for the
d
Tetley buy in 2000.) So far, the Tatas have indicated that group
38 | c o r p o r a t e l a w
will depend on whether the group can make Corus fly. And it may
be more challenging for Mr Tata than flying the F1615.
Bibliography
Books:
m
•
c o
Avtar Singh, Company Law (15th edition 2007), Eastern
Book Company.
.
a
m
• Gurminder Kaur, Corporate Mergers and Acquisitions
a
(2005), Deep & Deep Publication Pvt. Ltd.
d
•
tu Rao (editor), Mergers and Acquisitions of
P. Mohana
S
Companies (2000), Deep & Deep Publication Pvt. Ltd.
Web Reference:
• www.wikipedia.org
• www.legalserviceindia.com
• www.manupatra.com
15
by Pallavi Roy and Mobis Philipose, Making Corus Work, Business Today
39 | c o r p o r a t e l a w
Cases:
• W.A. Beardsell & Co. Ltd, Re(1968) 38 Comp Cas 197, 204
Mad.
• Reliance Jute Industries Ltd, Re. (1983) 53 Comp Cas 591
Cal
m
Magazines:
o
cCorus Work,
•
.
Pallavi Roy and Mobis Philipose, Making
Business Today a
m
a
yn
d
tu
S
40 | c o r p o r a t e l a w