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Mergers / Amalgamation

Mergers / Amalgamation. CA Study Circle, Kandivali (W). what is merger?. Not defined under the Companies Act / Income Tax Act --Generally, 2 or more entity becomes one -- the desired effect :not just the accumulation of assets and liabilities, but

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Mergers / Amalgamation

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  1. Mergers / Amalgamation CA Study Circle, Kandivali (W)

  2. what is merger? • Not defined under the Companies Act / Income Tax Act • --Generally, 2 or more entity becomes one • -- the desired effect :not just the accumulation of assets and liabilities, but • to achieve several benefits such as, economies of scale, acquisition of cutting edge technologies, obtaining access into sectors / markets with established players etc.

  3. merger or amalgamation? • Both terms mean same or are different? • Horizontal - entities engaged in competing businesses AND at the same stage of the industrial process. • Vertical - at different stage of the industrial process. For example, construction co with brick manufacturer; • Helps a company move towards greater independence and self-sufficiency

  4. congeneric - entities engaged in the same general industry and somewhat interrelated, but having no common customer-supplier relationship - to use the same sales and distribution channels to reach the • customers of both businesses

  5. conglomerate - entities in unrelated industries; • purpose: utilization of - • financial resources, • enlargement of debt capacity, • increase in the value of outstanding shares by increased leverage and earnings per share, and by lowering the average cost of capital. • Also to foray into varied • businesses without having to incur large start-up costs

  6. Cash / Cash-out - the shareholders of one entity receive cash in place of shares • common where the shareholders of one of the merging entities do not want to be a part of the merged entity

  7. triangular - it is a tripartite arrangement in which the target merges with a subsidiary of the acquirer. • Based on which entity is the survivor after such merger, a triangular merger may be • forward (when the target merges into the subsidiary and the subsidiary survives), • or reverse (when the subsidiary merges into the target and the target survives).

  8. Law • Competition Act • Companies Act • Listing Agreement • SEBI - ICDR, Insider Trading • Income Tax Act - definition of 'amalgamation', sections 47, 72A • SEZ - bonded assets • Stamp Duty • Accounting Standards • Labour laws

  9. Competition Act a merger or amalgamation where the resulting entity has, (i) assets valued at more than Rs. 10 billion or turnover of more than Rs. 30 billion, in India; or (ii) assets valued at more than USD 500 million in India and abroad, of which assets worth at least Rs 5 billion are in India, or, turnover more than USD 1500 million of which turnover in India should be at least Rs 15 billion

  10. a merger or amalgamation where the group to which the resulting entity belongs, has (i) assets valued at more that Rs. 40 billion or turnover of more than Rs 120 billion, in India; or (ii) assets valued at more than USD 2 billion in the aggregate in India and abroad, of which assets worth at least Rs 5 billion should be in India, or turnover of more than USD 6 billion, including at least Rs 15 billion in India

  11. Companies Act • Sections 390 to 394 • worded so widely, that they would provide for and regulate all kinds of corporate • restructuring that a company may possibly undertake; such as mergers, amalgamations, demergers, spin-off /hive off, and every other compromise, settlement, agreement or arrangement between a company and its members and/or its creditors

  12. Section 394 (4) (b) makes it clear that: • a ‘transferor company’ would mean any body corporate, whether or not a company registered under the Companies Act (i.e. an Indian company), implying that a foreign company could also be a transferor, and • a ‘transferee company’ would only mean an Indian company.

  13. Procedure • Merger is an arrangement between the merging companies and their respective shareholders, each of the companies proposing to merge with the other(s) must make an application to the Company Court. • 1) Board meeting - appoint valuer for valuing shares • 2) Another Board meeting - determine share exchange ratio and approve scheme

  14. 3) Application to Court • 4) Court order convening meeting of shareholders and creditors; also appoints Chairman • 5) At meeting, consent of simple majority in number and 3/4th in value • 6) Chairman report to Court • 7) Make Petition to Court • 8) ROC and RD approval • 9) CA appointed by OL

  15. 10) CA report to OL and OL to Court 11) Final hearing and Court order 12) File Court order with stamp office for adjudication and with ROC

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