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The pioneer in M&A was Lazard Freres. By the mid 1990s, Goldman was clearly the leader in M&A. In industry parlance M&A bankers who do big ticket deals are known as Bid Swinging Dicks.

The deals that they look for have to yield fee incomes of about $10 m at the least.

The emergence of the M&A banker (a professional Ibanker specialised in M&A) led to the era of transaction banking popularised by Morgan Stanleys Greenhill and Eric Gleacher, from that of relationship banking practised by Goldman Sachs under Sidney Weinberg. Greehill and Gleacher are regarded as the founders of modern day M&A banking.


M&A has substantial synergy with the other segments, i.e. public offers, underwriting and private equity. The financial sponsors of many big ticket M&A transactions are private equity funds. M&A has three components buy, sell and financing.

Sell side banking involves pitching to many potential buyers usually through pitch books or information memoranda. Sell side success fee is generally more than buy side fee.
Buy side banking involves advising one buyer only. However, many a time, it involves financing as an additional component.



Merger / Absorption

A+B = A or B (with or without name change) A+B = C (new entity)


Halsburys Laws of England considers amalgamation as a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company, which is to carry on the blended undertaking..


Amalgamation (defined under the Income Tax Act)

includes merger of one company with another. If more than two companies merge into each other, such process is covered as well. Is a Court Process. Involves dissolution of company(ies). Is a process involving Pooling of Interest.

Amalgamation is the integration of companies while merger is the process of integration. Merger is only one way of achieving amalgamation. Business Purchase is the alternative method of amalgamation.


The terms amalgamation and merger are not defined under the Companies Act. The omnibus word used is arrangement in section 390(b). The IT Act defines the word amalgamation and the definition has been followed for the purpose of Accounting Standard 14. Types of M&A as per law Transfer by sale of undertaking (all assets and liabilities) these are dealt with under Sections 394-395 of the Companies Act. Transfer by sale of assets alone (Slump Sale) These are dealt with under Section 293(1)(a) of the Companies Act. Transfer by sale of shares - unlisted companies subject to Company law. Listed companies to Takeover Code. Consent by at least 90% shareholders (by voting right) required for compulsory directive to minority shareholders. High Court order necessary to confirm the amalgamation.


Horizontal Mergers - Novartis (Sandoz-Ciba Geigy), Glaxo-SKB, Exxon-Mobil, HP-Compaq, Daimler BenzChrysler, Arcelor-Mittal, Times Bank and HDFC Bank, ICICI Bank Nedungadi Bank Bank of Madura, Centurion Bank-Bank of Punjab, IDBI Bank-United Western Bank etc. Vertical Mergers - Reliance group (RIL-REPL, RPPL, RPL) Conglomerate Mergers HUL-Ponds-Brooke BondLipton, AOL-Time Warner, Daimler-Chrysler


Most countries have a common regulatory framework for M&A. Broadly this is as follows

Scheme of Arrangement under which negotiated bids are accomplished under the law of the land with the approval of a court of competent jurisdiction. Takeovers which are accomplished by following the respective Takeover Code of the given jurisdiction. Unsolicited bids fall under this category. Most countries prescribe stiffer barriers for takeovers than for schemes since these are many a time, unsolicited.

In cross border transactions, the above framework of law has to be followed in both jurisdictions that of the acquirer and the target.


In practice, Amalgamation /Merger can happen in the following two ways


A and Co. B will be valued and based on mutual valuation, a share swap ratio is fixed. Under this arrangement, there is no purchase consideration in the form of cash or other assets. This type of a transaction is called Amalgamation in the nature of a merger. The accounting method followed for mergers is known as Pooling of Interests method.


Co. A arrives at a Deal Price for acquiring the business undertaking(s) of Co. B. This would be based on the business valuation of Co.B if the whole business is being acquired on a As is Where is condition. However if only a part of the business / only the assets / only assets and some liabilities are being acquired, the purchase consideration is fixed based on negotiated price of the net assets being acquired. This type of transaction is known as Amalgamation in the nature of Purchase.

The purchase consideration (deal price) would be settled either by shares in A or in cash or partly by both. The method of accounting followed for this type of amalgamation is called the Purchase Consideration method.


All assets and liabilities of the transferor company should become those of the transferee company and the transferor company is dissolved. The transferee company continues thereafter as the only legal entity. Existing shareholders to the extent of 90% at least should be retained. Consideration should be wholly settled by issue of shares. Business of the transferee company continues as an integrated business along with that of the transferor company. No changes are made to the book values of assets and liabilities of the transferor company.


Negotiations, deal discussions Valuation DCF is the primary method, other methods are used in combination. In the TOMCO case, it was done using the dividend yield method, NAV method, and market value method with appropriate weightages. Other methods could be the earnings multiple valuation or the relative valuation. In diversified companies, sum of parts valuation is used. Independent valuers are used to confirm valuations done by either party. Preparation of the Scheme of Merger and determination of Share Swap Ratio. Management approval at BoD meeting. Due Diligence independent agencies are appointed. Confirmation of Share swap Ratio. Petition filed in High Court, hearings and confirmation by the


Supreme Court in Miheer H. Mafatlal vs. Mafatlal Industries Limited (AIR 1997 SC 506) on the duties of a Court while approving a Scheme. As observed in this judgement of the Honourable Supreme Court, the Court has to consider the pros and cons of the scheme with a view to finding whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy.




A gets to own / control B or vice-versa (no change in entity and / or change in management. Acquisitions are mostly initiated from the sellers side)
A getting to own B partly or fully or vice versa (with change in management, mostly initiated as hostile bids from buyers side)



Historically, takeovers were sought to be regulated by the Listing agreement (clauses 40A and 40 B. Triggered off by an acquisition of shares with voting rights above 25%. Weak legal mechanism with no penalties other than delisting. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations were first enacted in 1994 providing a regulated procedure for takeover bids for listed companies, including mechanisms for counter offers and counter bids in a transparent manner. The Regulations were overhauled in 1997 to include cases of change in control without transfer of shares.


If a person acquires up to 5% of a company, he has to inform the company about the same with disclosure of the beneficiary.

If a person acquires between 5% and 24.99%, he has to inform both the company and the stock exchange about the acquisition. The company should also intimate the stock exchange under the listing guidelines. For Substantial Acquisition of shares amounting to 25% and above, the SEBI (Substantial Acquisition of shares and Takeovers) Regulations 2011 shall apply.
Persons holding 25% or more but less than the maximum permissible non-public shareholding (25%) shall not acquire more than 5% per year through creeping acquisition route. No acquisition beyond 75% is permissible. Indirect acquisitions and acquisition of control are also covered.


Voluntary offers are permitted as follows Persons holding between 25% and 75% such that the post offer shareholding does not cross 25%. Persons who have not acquired any shares in the preceding 2 weeks. Once offer is announced, no further acquisitions are allowed other than through the offer and for six months after the offer. Price stipulation is the highest of the following (as the minimum offer price) Highest Negotiated Price Preceding 52 weeks weighted average acquisition price Preceding 26 weeks highest acquisition price Weighted average market price for the preceding 60 days before the open offer announcement For infrequently traded shares, the price arrived at by the offer manager by valuing the company on established parameters.


The purchase consideration may be paid by Cash by issue, exchange or transfer of listed shares in the equity share capital of the acquirer. by issue, exchange or transfer of listed secured debt instruments by issue, exchange or transfer of convertible debt securities entitling the holder thereof to acquire listed shares in the equity share capital of the acquirer. a combination of the above Where the shareholders have been provided with options to accept payment in cash or by way of securities, or a combination thereof, the pricing for the open offer may be different for each option subject to compliance with minimum offer price requirements.


Once an open offer is announced, the board of directors of the target company have obligations not to obstruct the offer through the following measures unless a special resolution by shareholders is passed Issue of new shares Buyback of shares Alienate any material assets Effect any material borrowings Issue any warrants or other convertibles Rights issue Terminate material contracts The independent directors of the target company shall provide guidance to shareholders atleast two working days before the commencement of the tendering period. Competing offers within 15 days of the original offer. Price revisions possible upto 3 days before the tendering period.


General Exemptions Public and Rights Issues (without change in management) Underwriting agreements Interse transfers among promoter group. Acquisition in the ordinary course of business. By way of transmission or succession or inheritance. Transfers from Financial Institutions, acquisitions by State owned entities. Pursuant to a scheme under reconstruction of sick companies through a court or quasi-judicial process or otherwise under any law involving reconstruction. In un-listed companies. GDRs/ADRs without conversion into underlying shares. Case by case exemptions from Open Offer requirements on application to SEBI.


Takeover Bid with or without Open Market Purchase Under this route, the acquirer announces an open offer under the Takeover Code for the target company. However, since the law provides a window of acquiring upto 14.99% without an open offer, it is customary for the acquirer to purchase shares of the target listed company from the secondary market and consolidate these holdings with an open offer. Bombay Dyeing Arun Bajoria, ICL-Raasi Cements etc.


Negotiated Takeover The acquirer strikes a deal to acquire a stake in the target company from one or more existing shareholders so as to make a substantial acquisition. The sellers could be the promoters themselves or other non-promoter shareholders. In cases involving strategic disinvestments by the promoters, this route is generally adopted. In a negotiated acquisition, the sellers are paid the sale consideration by the acquirers and therefore, the company does not get any benefit of the consideration. In a strategic disinvestment, the acquirer provides an exit route for the existing promoters, such that if the acquirer triggers off a strategic disinvestment by buying out the existing promoters with an attractive exit price, it becomes a friendly takeover. The expression friendly takeover has two dimensions (a) it is friendly because the promoters ultimately sell their stakes willingly and (b) it is a takeover since the existing promoters have to make an uncontemplated exit. E.g. Indal


Acquisition through Share Purchase and / or Preferential Allotment - When an acquisition is intended for the benefit of a company, it is customary to build the stake of the acquirer through a secondary share purchase. If desired, it may be combined with a fresh issue of equity so that the company receives the sale consideration. Induction of strategic partners into a company is generally through this route.


Negotiations, deal discussions Valuation DCF is the primary method, other methods are used in combination. In the TOMCO case, it was done using the dividend yield method, NAV method, and market value method with appropriate weightages. Other methods could be the earnings multiple valuation or the relative valuation. In diversified companies, sum of parts valuation is used. Independent valuers are used to confirm valuations done by either party. Deal Structuring. Preparation of the Scheme of Merger. Due Diligence independent agencies are appointed. Shareholder and Creditor approvals, Court hearings and Passing of orders confirming the merger.


Arriving at transaction structure for a merger / acquisition. Assessment of the impact of inter-se valuation on both companies in the case of a merger at the agreed share swap ratio. Generally speaking, if the merging company has a lower P/E than the absorbing company, its shareholders stand to lose. The deal size for the transaction, especially if the consideration is in cash, e.g. acquisition under the Takeover Code. Currency for M&A shares, bonds / cash / assuming liabilities Financing Plan internal accruals, asset sale, co-investors, private equity or buy-out funds, long term debt, LBO. Deal Structuring


Cross border acquisitions are more complex since they involve regulatory issues in both jurisdictions including the foreign direct investment law. Cross border acquisitions of and by Indian companies require compliance with Indian FDI / ODI law. All other acquisition requirements need to be complied with in case of a cross border acquisition of an Indian company. There are disclosure requirements under the listing guidelines for overseas acquisitions by Indian companies, apart from accounting requirements. In the case of LBOs wherein financing of acquisitions are also envisaged, the investment banker is also responsible in raising capital for the acquisition vehicle through debt and equity. Deal structuring in such cases involves both the financing structure and the acquisition structure.


A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment grade, properly referred to as high-yield or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through a LBO fund that specializes in such investments.


Four stages of LBO

Financing stage sponsor equity, senior debt, subordinated debt. The financing is infused into a SPV formed for the acquisition. Typically, 70% would be structured debt and 30% would be equity. Structured debt would include bonds or mezzanine debt. Taking target company private Restructuring operations and creating / improving value Taking company public again reverse LBO or SIPO.

DCF Method Relative Valuation Surrogate Valuation NAV, Replacement Value or Break-up Value Target Price History Analysis M&A multiples Open Offer Analysis LBO Analysis


TOMCO CASE - In the case of TOMCOs sale to Hindustan Lever Ltd., the share swap ratio was fixed at 2:15 in favour of HLL. The valuation was done using the dividend yield method, the net asset value method and the market value method giving appropriate weightage to each method in arriving at the final ratio. This valuation was upheld by the Honble Supreme Court in a review petition filed by the complainant against the judgment of the Bombay High Court supporting the valuation. The Supreme Court observed that considering the market price of the shares of both companies as on the review date (17-06-1993), the exchange ratio was fair. The market price of TOMCO share was Rs. 52.50 and that of HLL was Rs. 375.The EPS of TOMCO for the previous year was Rs.0.30 with a book value of Rs. 29.75 per share and that of HLL was Rs.7.03 and Rs.23.80 respectively.

The issue to be examined in this case was whether a combination of three methods could be adopted and if not, which method would be appropriate. Obviously, both companies were comparable on book value but not on EPS, P/E ratio and market price. The Supreme Court observed, it will therefore appear that in a case of amalgamation, a combination of all or some of the methods of valuation may be adopted for the purpose of fixation of the exchange ratio of the shares of the two companies... Justice R.M.Sahai observed, it is not required to interfere only because the figure arrived at by the valuer was not as good as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair for the shareholders of the company which was being merged...