Chapter 2 Accounting for Mergers & Demergers ‘The beginning of an amalgamation may be made through common agreements between the transferor and the transferee, but this does not give the transaction legal protection unless it is approved by the company court, in which case the procedure outlined in Section 391 of the Companies Act should be followed to give effect to an amalgamation or demerger through the statutory instrument of the Court's approval. Although Sections 389 to 396A of Chapter V of the Companies Act, 1956, deal with the subject and related matters involving arbitration, compromises, arrangements, and reconstructions, it becomes necessary to refer t0 other Acts, such as Court Rules, in each case of amalgamation, demerger, or takeover at different times and under different circumstances, Tax laws such as the Income Tax Act, SEBI laws, NBFC regulations, Sales Tax Act, Fxcise Laws, Indian Stamp Act, Tenaney Rights Act, Urban Land Ceiling Act, ete, The process is complicated since several acts and rules are in play at once. I've attempted to condense the different laws that must be considered in order to properly organise aan amalgamation or demerger in this article, What is Amalgamation? © Merger of one or more companies into another company 2 One company survives and the others lose their existence @ The survivor is called the Amalgamated company and others are called ‘Amalgamating companies ® Amalgamated company takes over assets & liabilities of amalgamating companies. Consideration is paid in form of equity shares, debentures, cash ora mix ofall2 Two types of amalgamations, merger of one with another, sometimes also referred to as absorption; and merger of two or more companies to form a new company. From the above definition, itis clear that amalgamation and merger are differ terms but as far as India is concemed, same are considered as synonymous and used interchangeably. What is Demerger? © In demerger, a division of a company is transferred to a newly-formed company or an existing company © The transferor is called a Demerged company and the transferee is called a Resulting company ® Both the demerged company and resulting company retain their existence after demerger @ Consideration is paid by allotment of shares of resulting company to the shareholders of the demerged company © The remainder of the demerged company’s undertaking are vested therein,SEBI rules and regulations for M&A The Securities and Exchange Board of India (SEBI), a market regulator, has changed the relevant rules to make merger and acquisition deals easier for listed businesses. It claimed in a letter that rules governing the delisting of a company's equity shares following an open offer have been altered in an effort to simplify merger and acquisition procedures for listed companies. ‘The SAST (Substantial Acquisition of Shares and Takeovers) Regulations have been modified by SEB! in order to apply these regulations. On. Monday, December 6, these regulations went into effect. ‘The SEB! notification stated that under the new framework, promoters or acquirers must notify their intention to delist the firm by an initial public announcement.According to the statement, the acquirer must provide a greater price for delisting with a reasonable premium above the open offer price if it wishes to delist the target firm. I the open offer is for an indirect purchase, the acquirer will disclose the open offer price and indicative price in the letter of offer and at the time of the detailed public statement. According to the notification, "the indicative price shall include a suitable premium reflecting the price that the acquirer is willing to pay for the delisting offer with full disclosures of the basis and justification for the Indicative price so determined and may also be revised upward by the acquirer prior to the commencement of the tendering period." In the current system, if an open offer is made, compliance with takeover rules might increase the prospective acquirer's share to above 75% or even 90%. The acquirer would be required to reduce his interest to 75% first, however, in order to assure compliance with the Securities Contract (Regulation) Rules, as the Sebi delisting rules would not permit the acquirer to even attempt to delist without first reducing the holding to 75%. By balancing the interests of all investors, the updated framework hopes to make merger and acquisition (MBA) deals for listed firms a more sensible and practical procedure. According to the new framework, all shareholders who tender their shares will get the indicated price if the response to the open offer results in the delisting requirement of 90% being futilled. All shareholders who tender their shares will receive the open offer price if the response to the offer results in the delisting threshold of 90% not being satisfiedIT a company is not delisted after an open offer made in accordance with this framework and the acquirer has acquired more than 75% of the company as a result of the open offer, the acquirer will have 12 months from the date the open offer was completed to try again to delist the firm reverse book building mechanism, Such further delisting attempt will be successful if 50 per cent of the residual public shareholding is acquired and delisting threshold is met. Share Buyback Guidelines Buy Back of Shares/Securities As Per Companies Act And SEBI Regulations (Buy Back of Securities) 2018 Statutory Provisions of Buy-Back of Shares as PerCompanies Act 2013 and SEBI Act SEBI Regulations (Buy Back of Securities) 2018