CHAPTER-I

INTRODUCTION
“Growth through merger and acquisition has been a critical part of the
success of many companies operating in the new economy. The plain fact
is that acquiring is much faster than building. And speed-speed to
market, speed to positioning and speed to becoming a viable company –
is absolutely essential in the new economy.”
Alex Mandl1

1.1. Introductory

Intense competition, rapid technological change, major corporate scandals and rising
stock market volatility have increased the burden on companies to deliver superior
performance and value for their shareholders. In the modern ‘winner takes all’
economy, companies that fail to meet this challenge will face the certain loss of their
independence, if not extinction. Corporation restructuring has enabled thousands of
organisations around the world to respond more quickly and effectively to new
opportunities and unexpected pressures, thereby reestablishing their competitive
advantage.2 In the late twentieth and beginning of twenty first century, corporate
restructuring by means of mergers, acquisitions or amalgamations have become a major
force and anthem of new financial and economic environment across the globe.3

Growth is the key objective of any business entity, irrespective of the political
dogma/party which runs the country, in which such business entity functions.4 But when
growth strategies do not visualise or contemplate increase in capital base, companies
would go in for consolidations, mergers, amalgamations and management buy outs. The
trend towards globalisation of all national and regional economies have increased the

1
Alex Mandal, Chairman and Chief Executive of Teligent, Commented this in 2000 Edition of Harvard
Business Review, as quoted in Rachna Jawa, Mergers, Acquisitions and Corporate Restructuring in
India: Procedure and Case Studies, New Century Publications, New Delhi, 2009, p. 29.
2
Kawalpreet Kaur, “Impact of Takeovers: A Step Ahead or Behind”, A Project Report, Department of
Commerce Business and Management, Guru Nanak Dev University, (Unpublished), 2005, p. 1.
3
D.N.S. Kumar, “Strategic Acquisition through Value Based Management: A Case Analysis”,
Abhigyan, Vol. XXIV, No. 4, Jan-March 2007, pp. 42-47. p. 42.
4
N.R. Sridharan and P.H. Arvind Pandian, Guide to Takeover and Mergers, LexisNexis Butterworths
Wadhwa, Nagpur, 2010, p. 3.
1
intensity of mergers, in a bid to create more focused, competitive, viable, larger players
in each industry.5

Mergers, takeovers, restructuring and corporate control issues have become central
public and corporate policy issues. Mergers and Acquisitions (M&As) have indeed
come a long way and become the corporate mantra of the new century. M&As,
restructuring and corporate control activities represent a new industrial force that will
lead our country and other economics that practice these arts to new heights of
creativity and productivity.6

The rationale for this phenomenon can be explained as hereunder. Companies look at
various ways to grow. One way to do so is organic growth, where the company ploughs
back the profit it earns. The retained earnings, together with additional loans raised
from the lenders contribute to the expansion and growth of the company. Organically,
growth may take years to take place. In the dynamic corporate world, where few
minutes delays could mean a loss of millions, a few people would have the time to wait.
It is then that the companies look at mergers and acquisitions (M&As) as an alternative.
M&As constitute one of the most important methods for securing inorganic growth. In
other words, to survive in an increasingly complex and competitive global economy, it
is imperative to enhance size by joining hands with those, which have similar interest.7

Today, even the corporate world is hit by Darwin’s theory of evolution. i.e. survival of
the fittest. A firm focusing on organic growth essentially aims at achieving business
growth through enhanced customer base as well as high sales, both physical and
financial, together with growth in revenue. An inorganic growth opportunity, on the
other hand, provides the organisation with an avenue for accelerated growth.8 That’s
why companies are focusing on inorganic growth through M&As these days. Today,
restructuring wave is sweeping the corporate sector all over the world. Companies are

5
Mrityunjay Athreya, “Strategic Management of Mergers”, Chartered Secretary, October 1997, pp.
1131-1132, p. 1131.
6
J. Fred Weston et al., Mergers, Restructuring and Corporate Control, Prentice Hall, Englewood
Cliffs, New Jersey, 1990, p. xxv.
7
Rachna Jawa, Mergers, Acquisitions and Corporate Restructuring in India: Procedure and Case
Studies, New Century Publications, New Delhi, 2009, p. 1.
8
Vikamaditya Singh Malik and Vikrant Pachnanda, “Growth via Mergers v. Organic Growth: The
Indian Context”, Company Law Journal, 2009, Vol. 4, pp. 24-36, p. 24.
2
vying with each other in search of excellence and competitive edge, experimenting with
various tools and ideas. The changing national and international environment is
radically changing the way business is conducted. Moreover, with the pace of change so
great, corporate restructuring through M&As assumes paramount importance.

Mergers and acquisitions have gained importance in recent times as globalisation and
liberalisation has forced various business entities to restructure themselves by way of
mergers, demergers and acquisitions.9 Unless, a company is large in size and capital, it
is very difficult to compete with overseas companies where the cost of production is
lower due to economies of scales. In a free competitive world, it is necessary for a
company to be placed in such a manner that it is in a position to compete with the best
in the world. This could easily be achieved through M&As.

Financial Restructuring through mergers and acquisitions (M&As) is taking place at an

unprecedented pace all over the world including India during the last few years.10
Dramatic events in mergers, takeovers, restructuring and corporate control fill the
newspaper headlines almost daily.11 Be it, the latest Sun Pharma’s acquisition of
Ranbaxy from its Japanese parent Daiichi Sankyo, Daiego’s recent endeavour to buy
stake in Vijay Mallya’s United Spirits, Cairn-Vendata merger, Airtel acquisition of Zain
Telecom of Africa, or the Jet-Sahara merger, merger and acquisition is the word of the
day. Hindalco acquisition of Novelis, Videocon acquisition of Daewoo Electronic
Corporation, Tata Steel’s acquisition of the European steelmaker, Corus headlined a
frenzy of acquisitions of foreign companies by Indian corporate enterprises in the past
few years.

As the sweeping wave of economic reforms and liberalisation has. transformed business
scenario all over the world, the national economics have been integrated with ‘market-
oriented globalised economy’. Considering, the drastic changes in global environment,
India has also changed it self, in its economic policies.

9
Bhasin, “Mergers and Acquisition: An Overview”, Manupatra Newsline, Vol. 1, Issues 7, December
2006, pp. 11-13, p. 11.
10
Rachna Jawa, 2009, p. 1.
11
J. Fred Weston et al., 1990, p. xxv (Preface).
3
Historically, the foreign investment policy of the Indian Government (during the period
from 1950 to 1990) consisted of stringent foreign exchange controls and regulations
including in the form of industrial licensing, quota system, capital controls, a bar on free
trade and control of the flow of funds to a very larger extent. As early as 1984, India
saw the failure of a takeover attempt of Escorts Limited and DCM by Swaraj Paul’s
Caparo Group, owing to the promoters using political clout against the uninvited
acquirer.12

But with the advent of liberalisation in the FDI policies post-1991, M&As and alliance
talks are heating up in India and growing at a tremendous pace. The policy of opening
the country for international trade and investment thus allowing the investors across the
globe to enter the Indian market has lead to unprecedented rise in M&A transactions in
India. Today the Indian market is witnessing lot of high value M&As like Bharti
Airtel’s acquisition of Zain Telecom of Africa for $10.7 billion. With this deal Bharti
has acquired Zain’s African mobile services operations in 15 countries with a total
customer base of over 42 million. With this acquisition, Bharti has become the world’s
fifth largest wireless company with operations across 18 countries. Another prominent
acquisition is that of India’s largest IT companies HCL Technologies Ltd acquiring the
British based Axon group Plc’s SAP consulting firm for $0.662 billion in all cash deal.
The deal has catapulted HCL into the top 15 global players in the enterprise applications
services (EAS) business.13 One of the largest deals in Indian M&A space is acquisition
of majority stake in Cairn India Limited by Vedanta Resources Plc. The deal marks the
Vedanta group’s foray into the Oil and Gas space with an access to a world class oil
exploration asset having significant growth potential in the import reliant Indian Oil and
Gas market. Last but not the least, Tata’s acquisition of Corus Steel for 12.2 billion
dollars. Thus, the liberalisation of foreign exchange policies coupled with rapid
economic growth have driven Indian companies to acquire softer targets in India or
abroad.

12
H. Jayesh, “India’s Negotiated M&A Guide”, retrieved from http://www.ibanet.org/Document/
Default.aspx? Document llid=966A8448, accessed on 1 February 2014 at 6.25 pm.
13
Ernst and Young, Master Guide to Mergers and Acquisitions in India, Wolters Kluwer (India) Pvt.
Ltd., Gurgoan, 2011, p. 8.
4
Mergers, acquisitions and takeovers have become a major force in the financial and
economic environment all over the world. Essentially an American phenomenon till the
mid-seventies, they have become a dominant global business force since then. On the
Indian scene, too, thanks to the liberalisation of FERA, MRTP Act and industrial
licensing and the compulsion to be more competitive, corporates are looking seriously
at mergers, acquisitions and takeovers.14 The recent liberalisation of the earlier state-
controlled, sluggish Indian economy has made mergers more necessary and
acceptable.15

A restructuring wave in the form of mergers, takeovers and acquisitions activities is

sweeping the corporate world. Indian corporate sector could not have been left behind,
that’s why from banking to oil exploration, telecommunication to power generation,
petro chemicals to aviation, companies are coming together as never before.

The concept has caught up like wild fire with a merger or two being reported every
second day and this time Indian companies are out to make a global presence. Close on
heels of Tata-Corus acquisition, as discussed above, came another acquisition i.e.
acquisition by Hindalco, the flagship metal company of Aditya Birla Group of Novelis
Inc based in Atlanta at $6 billion. With this transaction, Hindalco has become world’s
largest aluminum rolling company and one of the biggest producers of primary
aluminum in Asia. The other major takeover making waves has been the acquisition of
majority interest of Hutchison-Essar by Vodafone.16

Tata’s pioneering acquisition of Corus coupled with Hindalco’s acquisition of Novelis

and other acquisitions exemplify the arrival of India Inc. in the global arena. The event
is path breaking and displays a level of confidence and values which places Indian
Industry at an altogether new level. These deals have put India in the centre stage of
global M&A activity. From senior politicians to ordinary citizens, Indians have joined

14
Prasanna Chandra, Fundamentals of Financial Management, Tata McGraw-Hill Publishing
Company Limited, New Delhi, 1993, p. 291.
15
The Great Indian Turnaround, Keynote Address at the Calcutta Management Association, March
1992, quoted in Mritunjay Athraya (1997), p. 1131.
16
The Institute of Company Secretaries of India, Handbook on Mergers Amalgamations and
Takeovers, Wolkers Kluwer (India) Pvt. Ltd, New Delhi, 2010, p. 1.
5
the business community in celebrating the recent M&A boom, confident that it is yet
another indicator of India’s recent and rapid economic ascent.17 Even the wholly
European takeover of Arcelor by Mittal steel, orchestrated by Indian-born Lakshmi
Mittal, drew the vocal support of the Indian Government, with the Indian Commerce
Minister, Kamal Nath, publicly imploring the French government to recognise that
‘globalisation is not just a one-way street.’18

Deregulation, liberalisation, technological innovation, digital convergence and the

evolving requirements of the capital markets have driven dramatic changes in the Indian
corporate sector as a whole.19 The Indian industry found itself in an Excel or Exit
environment. If an industrial unit wants to survive, it has to excel and compete
successfully both with domestic and multinational competitors in internal as well as
international markets. If it cannot do it, the market forces would show such lethargic
units the exit door.20 The Indian companies have realised this fact that they have to play
skillfully, if they have to compete with multinational companies with vast resources,
advanced technology and enviable managerial skills. This has made inorganic growth
through M&As indispensable for our corporate sector. It has lead to a recent surge of
M&As in the Indian Corporate World.

The way for combinations, acquisitions, mergers and spin-offs has been paved by none
other than the highest court in India, which found no harm in the lines being redrawn in
the corporate map of the country. The Hindustan Lever Limited-Tomco case, embroiled
in interminal legislation, was given the deliverance by this epoch making
pronouncement of the court, thereby heralding liberation from the old mouldy policies
plaguing the country.21 The Apex court remarked: 22

17
Anand Gridharadas, “India is Reveling in Being the Buyer”, The New York Times, 6 February 2007,
pp. C2-C10, p. C8.
18
Shaun J. Mathew, “Hostile Takeovers in India: New Prospects, Challenges and Regulatory
Opportunities”, Columbia Business Law Review, 2007, No. 3, pp. 800-843, p. 802.
19
Saif Khan, “Mergers and Acquisitions in Indian Telecom Industry”, Madras Law Journal, 14 May
2009, Vol. 3, pp. 30-40, p. 30.
20
Ravi M. Kishore, Financial Management, Taxmann Allied Services (P.) Ltd, New Delhi, 2002, p.
715.
21
S. Ramanujam, Mergers et al (Issues, Implications and Case Law in Corporate Restructuring), 3rd
Edition, LexisNexis Butherworths Wadhwa, Nagpur, 2012, quoted in preface to the 1 st edition.
22
Hindustan Lever Employees Union v. Hindustan Lever Limited, AIR 1995 SC 470.
6
 “In this era of hyper competitive capitalism and technological change,
industrialists have realised that mergers/acquisitions are perhaps the best
route to reach a size comparable to global companies so as to effectively
compete with them. The harsh reality of globalisation has dawned that
companies which cannot complete globally must sell out as an inevitable
alternative.”
To sum up with the increasing competition and economy heading towards globalisation,
the corporate restructuring activities are expected to occur at a much larger scale than at
any time in the past, and are slated to play a major role in achieving the competitive
edge for India in international market place.

1.2. Basic Concepts

1.2.1. Corporate Restructuring

Corporate Restructuring involves reorganisation and rebuilding of areas within an

organisation which requires special attention from the management.23 It includes a
complete set of tools to transform existing organisational structure or capital of a
company, in order to achieve its corporate objectives and to attain certain strategic and
financial synergies.24 It refers to those activities that enhance or compress a firm’s
operations or substantially change its financial structure or bring about a significant
change in its organisational structure and internal functioning.25 Simply stated,
corporate restructuring is the comprehensive process by which a company can
consolidate its business operations and strengthen its position for achieving the desired
objectives-staying synergetic, slim, competitive and successful.26 To sum up, corporate
restructuring can be defined as any change in the business capacity or portfolio that is
carried out by an inorganic route or a change in the capital structure of a company that
is not a part of its ordinary course of business or any change in the ownership of or
control over the management of the company or a combination thereof.27 It occurs in

23
J.K. Singh, “Corporate Restructuring through De-merger of Undertakings –A Study of Recent Cases
in India”, Chartered Secretary, July 2008, pp. 923-932, p 923.
24
Yogesh Pratap Singh, “Corporate Restructuring under the Scheme of Amalgamation,” The Practical
Lawyer, December 2010, pp. (S-2)-(S-13), p. S-2.
25
Pooja Chaudhary, “Structure Mergers and Acquisitions to Exploit the Emerging Opportunities”,
Chartered Secretary, July 2010, pp. 951-955, p. 951.
26
Naresh Kumar, “Corporate Restructuring: Focusing on Core Competence for a Bright Future”,
Chartered Secretary, October 1997, pp. A297-A299, p. A-297.
27
M.Y. Khan and P.K. Jain, Financial Management: Text, Problems and Cases, Tata McGraw-Hill
Publishing Company Limited, New Delhi, 2009, pp. 33.1.
7
myriad ways in the form of mergers, acquisitions, spin-offs, leveraged buy-outs,
divestitures, demergers, joint-venture, equity-carve outs, etc.

As the focus of research is on Mergers and Acquisitions (M&As), the study will be
focused on corporate restructuring through M&As. M&As are the most popular means
of corporate restructuring activities. They have played an important role in external
growth of a number of leading companies the world over.

1.2.2. Mergers

A merger is said to occur when two or more companies combine into one company. In a
merger, one or more companies may merge with an existing company or they may
merge to form a new company.28 Most generally mergers mean any transactions that
forms one economic unit from two or more pervious ones.29 According to Weinberg and
Blank:

“A ‘merger’ may be defined as an arrangement whereby the assets of

two companies become vested in, or under the control of, one company
(which may or may not be one of the original two companies) which has
as its shareholders or substantially all, the shareholders of the two
companies. A merger is effected by the shareholders of one or both of
the merging companies exchanging their shares (either voluntarily or as a
result of legal operation) for shares in the other or a third company.”30

Merger is the fusion between two or more enterprises, whereby the identity of one or
more is lost and the result is a single enterprise. For example, both Centurion Bank and
Bank of Punjab ceased to exist when the two banks merged, a new banking company
Centurion Bank of Punjab was formed.

It can also happen the other way around, when one loses its identity and is merged into
another, for example in 2010, the Bank of Rajasthan merged with ICICI Bank, the
India’s largest private sector bank in an all share deal at about Rs 30.41 billion.31 The
Bank of Rajasthan lost its identity and merged into ICICI Bank. The same happened in

28
I.M. Pandey, Financial Management, Vikas Publishing House (P.) Ltd., New Delhi, 2007, p. 672.
29
J. Fred Weston et al., 1990, p. 4.
30
M.A. Weinberg et al., Weinberg and Blank on Take-overs and Mergers, Sweet and Maxwell,
London, 1979, p. 4, para 104.
31
Ernst and Young, 2011, p. 7.
8
Feb 2008 when Centurion Bank of Punjab was merged into HDFC Bank for $2.4
billion.

In a merger, the shareholders of the company or companies, whose identity/ies has/have

been merged (hereinafter referred to as the merging company or companies, as the case
may be) will be allotted shares in the merged company in exchange for the shares held
by them in the merging company or companies, as the case may be, according to the
share exchange ratio incorporated in the scheme of merger as approved by all or the
prescribed majority of shareholders of the merging company or companies and the
merged company in their separate general meetings and sanctioned by the Court.32 For
example, in March 2009 when RPL (Reliance Petroleum Limited) merged into RIL
(Reliance Industries Limited), the swap ratio was fixed a 16:1 i.e. for every 16 shares in
RPL, the shareholders get 1 share in RIL whereas in 2002-03, when IPCL (Indian
Petrochemicals Limited) got merged into RIL, the shareholders got 1 share of RIL for
every 5 shares held by them. In 2012, in the merger of Sesa Goa-Sterlite industries,
Sterlite shareholders got 3 shares in Sesa Goa for every 5 shares held in Sterlite
industries.

Merger or Amalgamation may take two forms:

(1) Merger through Absorption: An absorption is a combination of two or more

companies into an existing company. All companies except one lose their identity in a
merger through absorption. An example of this type of merger is the absorption of Tata
Fertilisers Ltd. (TFL) by Tata Chemicals Ltd. (TCL). TCL, an acquiring company (a
buyer), survived after merger while TFL, an acquired company (a seller), ceased to
exist. TFL transferred its assets, liabilities and shares to TCL. Under the scheme of
merger, TFL shareholders were offered 17 shares of TCL (market value per share being
Rs. 114) for every 100 shares of TFL held by them.33

(2) Merger through Consolidation: A consolidation is a combination of two or more

companies into a new company. In this form of merger all companies are legally
dissolved and a new entity is created. In a consolidation, the acquired company transfer
32
The Institute of Company Secretaries of India, 2010, p. 2.
33
I.M. Pandey, Financial Management, Eight Edition, Vikas Publishing House Pvt. Ltd., New Delhi,
2000, p.1096.
9
its assets, liabilities and shares to the acquiring company for cash or exchange of shares.
In a narrow sense, the terms amalgamation and consolidation are some times used
interchangeably. An example of consolidation is the merger or amalgamation of
Hindustan Computers Ltd, Hindustan Instrument Ltd, Indian Software Company Ltd
and Indian Reprographics Ltd. in 1986 to an entirely new company called HCL Ltd.34

1.2.3. Acquisition

Acquisition, in general sense, is acquiring the ownership in the property. In the context
of business combinations, an acquisition is the purchase by one company of a
controlling interest in the share capital of another existing company. An acquisition may
be affected by the following:35

1. Agreement with the persons holding majority interest in the company

management like members of the board or major shareholders commanding
majority of voting power.

2. Purchase of shares in open market.

3. Making takeover offer to the general body of shareholders.

4. Purchase of new shares by private agreement.

5. Acquisition of share capital of one company by either all or any one of the
following form of considerations viz. means of cash, issuance of loan capital or
issuance of share capital.

Acquisition may also be effected by acquiring assets. Acquirer may purchase only
assets or some specific assets and not all the assets and liabilities of the company. An
acquisition can also be defined as an act of acquiring effective control of one company
over assets or management of another company without any combination of companies.
Thus, in an acquisition, two or more companies may remain independent, separate legal
entities, but there may be a change in control of the companies.36 But in some cases,
acquisition may also be aimed simply to consolidation of shareholding or voting rights

34
Ibid.
35
J.C. Verma, Corporate Mergers Amalgamation and Takeovers, Bharat Law House, New Delhi,
2009, p. 69.
36
I.M. Pandey, 2000, p. 1097.
10
in a company without intending to takeover the control and management of the
company.

It can be noted that in acquisition unlike merger, the target company’ identity remains
intact. Unless the acquirer company does not specifically decide to merge the target
company with itself and carries out all the legal processes required to complete the
merger, the target/acquired company continues to exist as earlier. What changes is the
entity that now controls its management or policy decisions or the composition of its
boards of directors. There are many ways in which control over a company can be
acquired. These are:37

1. Acquiring i.e. purchasing a substantial percentage of the voting capital of the

target company.

2. Acquiring voting rights of the target company through a power of attorney or

through a proxy voting arrangement.

3. Acquiring control over an investment or holding company whether listed or

unlisted, that in turn holds controlling interest in the target company.

4. Simply acquiring management control through a formal or informal

understanding or agreement with the existing person(s) in control of the target
company.

In today’s corporate world, both in India and abroad, acquisition has been well accepted
as a growth strategy. Everyday in the newspapers, there is some news about some new
acquisition. Therefore, there are umpteen number of examples of acquisitions that can
be given.38 However some of the notable acquisitions in the Indian context in the recent
past have been listed below:

1. Tata Steel’s acquisition of 100% stake in Corus group. On 30 January 2007 in

all cash deal which cumulatively amounted to $12.2 billion. It has been one of
the biggest outbound deal by an Indian company.

37
Prasad G. Godbole, Mergers, Acquisitions and Corporate Restructuring, Vikas Publishing House
Pvt. Ltd., Noida, 2009, p.15.
38
Id., p. 19.
11
2. Vodafone acquired administering interest of 66.98% in Hutchison-Essar for a
total worth of $11.08 billion on 11 February 2007.

3. Daiichi Sankyo acquisition of Indian pharmaceutical major Ranbaxy for $4.5

billion in 2008. The (b) and (c) are the illustrations of major inbound deals in the
Indian corporate sector.

1.2.4. Takeovers

Takeover is a general term used to define acquisitions only and both terms are used
interchangeably. The takeover can be defined as ‘acquisition of a certain block of equity
capital or controlling interest in a company which enables the acquirer to exercise
control over the affairs of the company.39 Weinberg and Blank, pioneers of the law on
mergers and takeovers have defined ‘take-over’ as follows:

“A ‘take-over’ may be defined as a transaction or series of transaction

whereby a person (individual, group of individuals or company) acquires
control over the assets of a company, either directly by becoming the
owner of those assets or indirectly by obtaining control of the
management of the company.” 40

They further explain that where shares are closely held (i.e. by a small number of
persons), a take-over will generally be effected by agreement with the holders of the
majority of the share capital of the company being acquired. But where the shares are
held by the public generally, the take-over may be effected (1) by agreement between
the acquirer and the controllers of the acquired company (2) by purchases of shares on
the stock exchange of (3) by means of a ‘take-over bid’.41

Takeover is a part of business strategy whereby an individual, group of individuals or a

company, directly or indirectly acquires shares or voting rights in a target company to
gain control over the decision-making power of management.42 Where the shares of the
company are closely held by a small number of persons, a takeover may be effected by

39
Sujata Roy and Navajyoti Samanta, “Takeover Defenses: A Comparative Analysis of Indian
Scenario”, Company Law Journal, 2008, Vol. 4, pp. 41-59, p. 41.
40
M.A. Weinberg et al., 1979, p. 3, para 103.
41
Ibid.
42
Naresh Kumar, “Corporate Restructuring-Legal and Regulatory Framework in India”, Chartered
Secretary, October 2011, pp. 1400-1407, p. 1403.
12
an agreement with the shareholders. However, where the shares of a company are
widely held by the general public it involves the process as set out in SEBI (Substantial
Acquisition of Shares and Takeovers) Regulation, 2011.43

Though, the researcher has tried her best to explain properly the concept of takeover,
the concept seems to be comprehensible but it eludes precise definition. It is perhaps for
this reason why regulations in most countries have not defined it. Even our SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011, has not given a
precise meaning to the term takeover. The Bhagwati Committee,44 in its Report viewed
that attempting a precise definition of takeover would not only be counter productive
but also limits the scope of the regulations. It should be left to SEBI to decide whether
there be any violation of regulations in a given situation of takeover through
investigation and if necessary to take required steps to enforce the regulations.

No doubt, the term takeover and acquisition mean one and the same thing and are used
interchangeably. But sometimes, a very minor distinction is made between the two.
When an acquisition is forced, hostile or unwilling it is called a takeover, and when
managements of acquiring and target companies mutually and willingly agree for the
takeover, it is called acquisition or friendly takeover. But overall apart from this minor
difference they mean one and the same thing.

To sum up, a company is said to be taken over when the acquiring company or the
person is able to nominate the majority of members on the board of directors of the
company being acquired, on account of the voting power they command at the
shareholders meeting.45 If shares totaling 51 percent of the total value of capital are held
by the acquirer and his associates, the takeover is complete and the acquirer gets the
status similar to that of a holding company. However, in most corporate takeovers, it is

43
Ernst and Young, 2011, p. 12.
44
Government of India, Justice P.N. Bhagwati Committee Report on Takeovers (Dated 18.1.97),
quoted in N.R. Sridharan and P.H. Arvind Pandian, 2010, pp. 994-1039, A Committee was set up by
SEBI in November 1995, under the chairmanship of Justice P.N. Bhagwati, former Chief Justice of
India, to review the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1994. The term of reference to the committee were:
(a) To examine the areas of deficiencies in the existing regulations, and
(b) To suggest amendments in the regulations with a view to strengthening the regulations and
making them more fair, transparent and unambiguous and also protecting the interest of
investors and of all parties concerned in the acquisition process (para 6.3 of the above report).
45
Ravi M. Kishore, 2002, p.716, para 18.4.
13
not necessary to acquire 51 percent of the shareholding. There exists a concept called
‘controlling interest’. A controlling interest is that proportion of the total shareholding
which results in control of the administration of the company through a majority in the
Board of Directors. This could be as low as 5 percent or as high as 51 percent of the
total number of shares.46

1.2.5. Types of Takeovers or Acquisitions

Takeover or acquisition can be categorised into following two categories:

(1) Friendly Takeover/Acquisition: It is a takeover effected with the consent of target

company’s executives or Board of Directors. If the target management is receptive to
the acquirer’s proposal, it may endorse the merger and recommend shareholder’s
approval.47 If the shareholders approve the merger, the transaction is consummated. But
if the parties do not reach to an agreement during negotiations, the proposal of merger
stands terminated and dropped out.48 The directors of the target company may agree
right from the start or after early negotiations or even after public opposition to the bid
(which may or may not have resulted in an improvement in the terms of the proposed
offer) or the directors of target company may actually have approached the acquiring
company to suggest the acquisition.49

As this takeover happens through negotiations between two groups, it is also called
negotiated takeover or consent takeover. Examples of such takeover are, acquisition of
45 percent controlling interest of Universal Luggage Manufacturing Company Ltd by
Blow Plast Ltd. Similarly, Mahindra and Mahindra Ltd, a leading manufacturer of jeeps
and tractors acquired a 26 percent equity stake in Allwyn Nissan Ltd. 50 The recent and
most prominent are Daiichi Sankyo acquisition of Ranbaxy and Daiego buying 53.4
percent stake in United Spirits in 2012.

(2) Hostile Takeover/Acquisition: When an acquirer company does not offer the target
company the proposal to acquire its undertaking but silently and unilaterally pursues

46
Ibid.
47
V.K. Bhalla, Financial Management and Policy, Anmol Publications Pvt. Ltd., New Delhi, 1998, p. 1143.
48
J.C. Verma, 2009, p. 74.
49
M.A. Weinberg et al., 1979, p. 111. G.D. Newbould in 1970 found that out of 38 mergers and
takeovers, in seven mergers and takeovers, the “victim” approached the bidding company.
50
I.M. Pandey, 2000, p. 1097.
14
efforts to gain control against the wishes of the existing management, such acts are
considered hostile on the management and thus called hostile takeovers. The takeover
of Great Offshore Limited is an example of hostile takeover, where the Bharti Shipyard
Limited acquired management control of Great Offshore Limited against the wishes of
the Great Offshore Promoters.51 This method normally involves purchasing of small
holdings of small shareholders over a period of time at various places. As a strategy, the
purchaser keeps his identity a secret. This kind of takeovers are usually referred to as
hostile or violent takeovers.52 It may also happen that the acquirer firstly approached the
target’s management, but the management did not support the proposed takeover for
any number of possible reasons, such as too low an offering price, a desire to maintain
the firm’s autonomy or a ‘poor fit’ and so on, it can reject the offer. In this case, the
acquirer can attempt to gain control of the firm by buying shares from the open market
from the financial institutions, or from mutual funds or from the shareholders of the
company, who would be willing to part with the shares at a price higher than the
prevailing market price.53 Such acts of the acquirer are known as ‘takeover raids’ in the
corporate world. These raids when organised in a systematic form are called ‘takeover
bids’. Both the raids and bids lead to merger or takeover. A takeover is hostile when it
is in the form of ‘raid’.54 Few instances of hostile acquisitions or takeovers are
acquisition of Shaw Wallace, Dunlop, Matter and Platt, and Hindustan Dorr Oliver by
Chhabrias, Ashok Leyland by Hindujas and ICIM, Harrison Malayalam and Spencers
by Goenkas, Allwyn Nissan Ltd by Mahindra and Mahindra. Tata Tea in 1988 made
public offer to takeover Consolidated Coffee Ltd and were successful in acquiring 50%
stake.55 Above all, the recently consummated Arcelor Mittal deal is an example of
hostile takeover, where the LN Mittal group acquired management control of Arcelor
against the wishes of the Arcelor management.56

51
“Mergers, Demergers, Takeovers and Acquisitions – An Indian Perspective”, retrieved from http://
wwww. wirc-icai-org/wirc_referencer/income%20tax%20&%20wealth/2tax/mergers_&_acquisitions.
html, accessed on 1 February 2014 at 6.58 pm.
52
Ravi M. Kishore, 2002, p. 717, para 18.4-1.
53
Vishal Majhee, “Analysis of Employment Effects of Takeovers and Mergers and Acquisitions”, A
Dissertation, Submitted to the Indian Law Institute, 2010, p. 14.
54
J.C. Verma, 2009, p. 74.
55
Gurminder Kaur, Corporate Mergers and Acquisitions, Deep and Deep Publications Pvt. Ltd., New
Delhi, 2005, p. 18.
56
Ernst and Young, 2011, p. 12.
15
Hostile acquisitions or takeovers are frequently used in developed markets of US and
UK to unlock value for shareholders. They have beneficial impact on the economy.
They keep the company management on guard and compel them to perform at higher
levels of efficiency. They encourage optimum utilisation of resources. For minority
shareholders, hostile takeovers are again beneficial since they ensure that management
works for improving shareholders value.

However, hostile acquisitions are fought over long period of time on different battle
grounds starting from court room and board room to media with the help of army of
professional lawyers, investment bankers, corporate financiers etc.57

Until the SEBI Takeover Code in 1997, Indian corporate managements could freely
block transfer of share ownership to potential takeover tycoon. There was no way
anyone could try majority stake, outvote existing management at Annual General
Meeting and replace it. Even if raider kept on buying in secondary market using
intermediary to disguise intentions, the financial institutions sided the existing
management.58

But in recent years, due to liberalisation of financial sector as well as opening up of the
economy for foreign investors, things have changed. In the new SEBI Takeover Code of
2011 the company’s management can not block shares. Anyone can buy 25% of shares
and then after making open offer acquire another 26%. With financial institutions
supporting them, they can ouster existing management but only after giving them notice
in the form of open offer to take remedial steps, may be in the form of counter offer. So
mechanism of takeover in India is such that any management short of 51% could loose
control if support of financial institutions is not available or there is less cash to make
counter bids.

1.2.6. Bail-out Takeovers

Bail-out takeovers are substantial acquisition of shares in a financially weak company

not being a sick industrial company, in pursuance to a scheme of rehabilitation
approved by a public financial institution or a scheduled bank (lead institution), who has
lent money to the financially weak company.

57
Gurminder Kaur, 2005, p. 17.
58
Id., p. 18.
16
The financial institution appraises the financially weak company taking into account its
financial viability, the requirement of funds for revival and draws up a rehabilitation
package on the principle of protection of interests of minority shareholders, effective
revival and transparency. The rehabilitation scheme provides the details of any change
in management and may provide for the acquisition of shares in the financially weak
company in the following manner:59

An outright purchase of shares; or

An exchange of shares; or
A combination of both

The person acquiring shares shall make a formal offer to acquire shares from the
promoters or persons in charge of the affairs of the management of the financially weak
company or financial institution.60 After that they shall make a public announcement of
their intention for acquisition of shares from the other shareholders of the company.61 In
the simplest words, takeover of a financially weak company by a financially stable
company to bailout the former is known as bailout takeover.

The acquisition of Satyam Computers by Tech Mahindra is an example of bail out

takeover.

1.2.7. Categories or Types of Mergers

Economists classify merger into following four categories:

(1) Horizontal Merger: A horizontal merger occurs when one firm combines with
another in its same line of business.62 It is combination of two competing firms
belonging to the same industry and are at the same stage of business cycle. When two
book publishers or two retail food chain merge with another to gain dominant market
share, it is a case of horizontal merger. The main purpose of such merger is to obtain
economies of scale from the larger combined unit. The economics of scale are obtained
by eliminating duplication of facilities and operations and broadening the product line,

59
Ernst and Young, 2011, p. 13.
60
Regulation 33 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
61
Regulation 34 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
62
Eugene F. Brigham et al., Intermediate Financial Management, The Drydren Press, Fortworth, 1999,
p. 800.
17
reduction in investment in working capital, elimination of competition through product
concentration, reducing advertising costs, increase in market segments and exercise of
better control on market.63 For example, merger of TOMCO with Hindustan Lever
Limited in 1993, Arcelor with Mittal Steels in 2006, Bank of Rajasthan with ICICI
Bank in 2010.

Horizontal mergers are regulated by the government for their potential negative effect
on competition. The number of firms in an industry is decreased by these mergers and
this makes it easier for the industry members to collude for monopoly profits. They are
also believed by many as potentially creating monopoly power on the part of the
combined firm enabling it to engage in anticompetitive practices. Whether horizontal
mergers take place to gain from collusion or to increase monopoly power of the
combined firm, in the presence of continuing government scrutiny of these mergers, is
an empirical question.64

Weinberg and Blank Define Horizontal Merger as follows:

“A takeover or merger is horizontal if it involves the joining together of

two companies which are producing essentially the same products or
services or products or services which compete directly with each other
(for example, sugar and artificial sweeteners). In recent years, the great
majority of takeovers and mergers have been horizontal. As horizontal
takeovers and mergers involve a reduction in the number of competing
firms in an industry, they tend to create the greatest concern from an
anti-monopoly point of view; on the other hand, horizontal mergers and
takeovers are likely to give the greatest scope for economies of scale and
elimination of duplicate facilities.”65

(2) Vertical Mergers: Vertical merger refer to the combination of two entities at
different stages of the industrial or production process within the same industry.66 For
example, in pharmaceutical industry, one could distinguish between research and
development of new drugs, the production of drugs and the marketing of drug products
63
J.C. Verma, 2009, p. 73.
64
J. Fred Weston, 1990, p. 83.
65
M.A. Weinberg et al., 1979, p. 5, Para 107.
66
Nishith Desai Associates, “Mergers and Acquisitions in India: With Specific References to
Competition Law”, July 2013, retrieved from www.nishithdesai.com/fileadmin/user upload/pdfs/
research/20%papersmergers/20%26%20acquisitions%20in%20india.pdf, accessed on 1 February 2014
at 7.11 pm.
18
through retail drugstores. If a firm engaged in production of drugs merges with the firm
engaged in marketing, it will be a case of vertical merger. It can take following forms:

(i) Vertical Backward Integration: Buying a supplier e.g. IBM’s acquisition of

Daksh.67

(ii) Vertical Forward Integration: Buying a customer e.g. Indian Rayon’s

acquisition of Madura garments along with brand rights.68

There are many reasons why firms might want to be vertically integrated between
different stages. There are technological economies such as the avoidance of reheating
and transportation costs in the case of an integrated iron and steel producer.
Transactions within a firm may eliminate the cost of searching for prices, contracting,
payment collecting and advertising and may also reduce the costs of communicating
and of coordinating production. Planning for inventory and production may be
improved due to more efficient information flow within a single firm. When assets of a
firm are specialised to another firm, the latter may act opportunistically to expropriate
the quasi rents accruing to the specialised assets.69

Also, mergers at global level between Time Warner and Turner is a good instance of
vertical integration. Similarly, combining the production unit, Time Warner with the
distribution network of Turner broadcasting could create vertical integration.70 But at
the same time, vertical merger also poses a risk of monopolistic trend in the industry.
Weinberg and Blank define vertical merger in the following manner:

“A takeover or merger is vertical whereas one of the two companies is an

actual or potential supplier of goods or services to the other, so that the
two companies are both engaged in the manufacture or provision of the
same goods or services but at different stages in the supply route (for
example, where a motor car manufacturer takes over a manufacturer of
sheet metal, or a car distribution firm). Here, the object is usually to
ensure a source of supply or an outlet for products or services, but the

67
See, Mohit Saraf, “Workshop on mergers and acquisitions”, retrieved from http://www.luthra.
com/Pres-Archive.htm, accessed on 16 March 2008 at 3.22 pm.
68
Ibid.
69
J. Fred Weston et al., Mergers, Restructuring and Corporate Control, Prentice Hall, New Jersey,
1990, p. 83.
70
Gurminder Kaur, 2005, p. 23-24.
19
 effect of the merger may be to improve efficiency through improving the
flow of production and reducing stockholding and handling costs.
Where, however there is a degree of concentration in the markets of
either of the companies, anti-monopoly problems may arise.”71

(3) Congeneric Mergers: A congeneric merger is achieved by acquiring a firm that is in

the same general industry but neither in the same line of business nor a supplier or a
customer.72 Congenric means ‘allied in nature or action’, hence a congenric merger
involves related enterprises.73 Examples of these mergers include the merger of a
machine tool manufacturer with the manufacturer of industrial conveyor systems,
merger of banking company with a leasing company as well as insurance companies
takeovers of mutual fund companies. The benefit of this type of merger is the resulting
ability to the use the same sales and distribution channels to reach customers of both
business.74 For instance, merger between Hindustan Sanitary ware Industries Ltd and
Associated Glass Ltd is an illustration of congenric mergers.

(4) Conglomerate Mergers: Conglomerate merger is a combination in which a firm

established in one industry combines with a firm from an unrelated industry. In other
words, firms engaged in two different/unrelated economic business activities combine
together.75 In this kind of merger, the acquiring company is not proposing to expand in
its own field of endeavour but in an altogether different sphere.76

According to Weinberg and Blank:

“A conglomerate take-over or merger involves the coming together of

two companies in different industries i.e. the business of the two
companies are not related to each other horizontally (in the sense of
producing the same or competing products), nor vertically (in the sense
of standing towards each other in the relationship of supplier and buyer
or potential supplier and buyer).77

71
M.A. Weinberg et al., 1979, pp. 5-6, Para 107.
72
Bhasin, “Mergers and Acquisitions: An Overview”, Manupatra Newsline, December 2006, Vol. 1,
Issue 7, pp. 11-13, p. 11.
73
Eugene F. Brigham, et al., 1999, p. 800.
74
V.K. Bhalla, 1998, p. 1142.
75
M.Y. Khan and P.K. Jain, 2009, p. 332.
76
Nicholas A.H. Stacey, Mergers in Modern Business, Hutchinson and Co. (Publishers) Ltd., London,
1966, p. 37.
77
M.A. Weinberg et al., 1979, p. 6, para 107.
20
The business of two companies lack any commonality either in their end product or in
the rendering of any specific type of service to the society. This is a type of merger of
companies which are neither competitors, nor complementaries nor suppliers of a
particular raw material nor consumers of a particular product or consumable. The
merging companies operate in unrelated markets having no functional economic
relationship.78 A typical example is merging of different businesses as like
manufacturing of cement products, fertilisers products, electronic products, insurance
investment and advertising agencies. L&T Ltd. and Voltas Ltd. is an example of a
conglomerate companies. In the Indian context, takeover of Mohta Steel Industries
Limited (MSK) by Vardhman Spinning Mills Limited (VSML) is an illustration of
conglomerate merger. In the international arena, Gulf oil’s acquisition of Montgomery
Ward illustrates a conglomerate merger.

Conglomerate mergers involve unification of different kinds of business under one

flagship company. The basic motive behind these mergers is to reduce risk through
diversification.79 It also enhances the overall stability of the acquirer and improves the
balances in the company’s total portfolio of diverse products and production
processes.80 The aim is to bring about stability of income and profits, since the two units
belong to different industries as adverse factors in sales and profits arising due to trade
cycles may not hit all industries at the same time.81 These mergers also enable use of
spare resources whether of capital or management. A merger with a diverse business
also helps the company to foray into varied businesses without having to incur large
start-up costs normally associated with a new business. Among conglomerate mergers,
three types have been distinguished.

(i) Product-Extension Mergers: These mergers broaden the product lines of firms,82 i.e.
when a new product line allied to or complementary to an existing product line is added,
it is defined as product extension merger. For example: merger between Hindustan
Sanitaryware Industries Ltd and Associated Glass Ltd, Phillip Moriss-Kraft and

78
The Institute of Company Secretaries of India, 2010, p. 3.
79
Bhasin, December 2006, p. 11.
80
P.L. Beena, “An Analysis of Mergers in the Private Corporate Sector in India”, retrieved from
http://www.cds.edu/download-files/wp3d.pdf, accessed on 16 August 2009 at 2.25 pm.
81
Vishal Majhee, 2010, p. 24.
82
J. Fred Weston, 1990, p. 85.
21
Pepsico-Pizza Hut are illustrations of product extension merger. In FTC v. Procter and
Gamble,83 a manufacturer of soap and detergent acquired a manufacturer of bleach, the
court recognised the merger as a product extension merger.

(ii) Geographic Market Extension Merger: A geographic market extension merger

involves two firms whose operations have been conducted in non overlapping
geographic areas.84 Examples of such mergers are: Morrison Supermarkets-Safeway
and Time Warner-TCI.

(iii) Pure Conglomerate Mergers: In a ‘pure conglomerate’ there are no important

common factors between the companies in production, marketing, research and
development or technology. In practice, there is a wide range of situations falling short
of ‘pure conglomerate’ in which there is some degree of overlap in one a more of these
common factors,85 which have been outlined above. It is suggested by some that in all
conglomerate mergers a certain proportion of activity by the acquired company should
be allied to that of the acquiring company i.e. it should not be a pure conglomerate
merger. In this way, new product activities can be grafted with less hazard on to the
expanding company’s total business.86

But a conglomerate merger is a complex process that requires adequate understanding

of industry dynamics across diverse businesses.87 These mergers do not usually raise
anti-monopoly questions and are thus favoured throughout the world as a means of
diversification. But they may do so where it is feared that the firm may abuse its market
power, such as by exerting pressure on firms from which some companies in the group
purchase supplies to place business with other companies in the group.88

(5) Reverse Merger: In the conventional method, the sick company is absorbed by the
profitable one (normal merger). On the other hand, if reverse situation takes place, i.e. if
sick company extends its embracing arm to the profitable company and in turn absorbs

83
386 US 568 (1967).
84
J. Fred Weston, 1990, p. 85.
85
M.A. Weinberg et al., 1979, p. 6, para 107.
86
Nicholas A.H. Stacey, Mergers in Modern Business, Hutichson and Co. (Publishers) Ltd., London,
1966, p. 37.
87
Ernst and Young, 2011, p. 12.
88
M.A. Weinberg et al., 1979, p. 7, para 109.
22
it in its fold, this action is called reverse merger.89 In several cases, the survival of a loss
making or sick company becomes important for many strategic reasons such as public
interest. In such cases, the law does provide encouragement through tax reliefs for the
companies which are profitable but get merged with the loss making companies. As
such a merger is not a normal or a routine, is called a reverse merger.90 It gives the
profit making company an automatic tax entitlement benefits of carry forward and set-
off of losses without complying with provisions of Section 72A of Income Tax Act.91

The financial institutions which act as operating agency for the sick company suggests
this remedy between two companies in the promoter group, thus attempting to control
the growing sickness in a process of quick and enduring solution. If one looks critically
at all reverse mergers approved so far, the undercurrent unmistakably is the protection
of interest of the financial institutions which have lent money to the sick company and
in most cases, the institutions themselves have mooted the idea of reverse mergers to
the promoters. Thus, the financial institutions have spearheaded this concept and their
support ensures the smooth passage of the scheme before various authorities. In
essence, one can say that reverse mergers are rehabilitation-oriented schemes adopted to
achieve quick corporate turn around.92 The reverse merger is by no means a new
invention, it flourished in the 1980s. It boomed again in the 1990s with the advent of
globalisation and competition.93

Reverse mergers are also entered into in many other ways, private company acquiring a
public company into its fold either to infuse management dynamism and profits into a
public company or for a private company merging into public company to get a
quotation on stock exchange without ‘going public’ in a usual way. The other way is
large unlisted company, merging into small listed company to maintain the listing. But
in the Indian context, the courts have used the reverse merger in the context of merging
of healthy unit into sick unit to avail the tax benefits.

89
S. Ramanujam, Mergers et al., Issues, Implications and Case Law in Corporate Restructurings,
LexisNexis Butterworths Wadhwa, Nagpur, 2012, p. 195.
90
J.C. Verma, 2008, p. 281.
91
Gurminder Kaur, 2005, p. 2.
92
S. Ramanujam, 2012, p. 196.
93
Ashish Banga, “Reverse Mergers: Indian Scenario”, SEBI and Corporate Laws, 1-7 June 2009, Vol.
92, pp. 49-59, p. 50.
23
It has been noticed that the companies carry out reverse merger to take advantage of the
benefits of section 72A, but after a year or so change their names to the one of the
healthy company. The merger of Kirloskar Pneumatics Ltd is such an example. The
company was merged with Kirloskar Tractors Ltd a sick unit, initially losing its name,
but after one year name of Kirloskar Tractors Ltd was changed to Kirloskar Pneumatics
Ltd the name prior to merger.94

The credit for expounding this concept goes to the Gujarat High Court which, for the
first time, brought out this concept in open in its scintillating judgement in Bihari Mills
Ltd, In re, Manek Lal Harilal Spinning and Manufacturing Company Limited, In re,95 In
this case, all the contours of this concept are analysed threadbare, apart from providing
answers to some important questions that are relevant in the Indian context. The Gujarat
High Court has classified in this judgement that the basic principles of reverse merger
should satisfy the following conditions:

Net assets of the amalgamating company are greater than the net assets of the
amalgamated company.

Equity capital to be issued by the amalgamated company pursuant to the

acquisition exceeds its original issued capital and

The control of the amalgamated company goes into the hands of the
management of the amalgamating company.

Another illustration is that of healthy Kirloskar Oil Engine Ltd. with Prashant Khosla
Ltd. (PKL), a sick company. As procedures under Sec 72A is long, tedious and
contentious procedure. Therefore, in order to avoid going to Central Board for Direct
Taxes (CBDT) and still having benefits of unabsorbed losses and depreciation- deal was
structured in reverse manner. Kirloskar merged into PKL and on the other hand
simultaneously PKL is renamed as Kirloskar Oil Engine Ltd. The reverse merger of
Chemplast with Urethanes India Ltd paved the way for the speedy rehabilitation of
Urethanes India Ltd.

94
J.C. Verma, 2008, p. 282.
95
(1985) 58 Com Cases 6.
24
The reverse merger of Godrej Soaps Ltd. (GSL) into loss making Gujarat Godrej
Innovative Chemicals Ltd. (GGICL) is another illustration of this kind of merger. The
post-merger company restructured its gross profits of Rs. 49.09 crore, which led to
reduction of an effective tax burden of Rs. 1.06 crores and net profits of Rs. 48.03 crore.
Upon the scheme coming into effect, the name of the transferee company would be
changed from GGICL to GSL. This innovative merger was completed with the full
blessings of all the leading financial institutions like IDBI, ICICI, IFCI, LIC, UTI, etc. 96

To conclude, classification of mergers from economic stand point helps to identify

mergers motives. But it is difficult to classify a merger case within one of these
categories. In fact, each merger case bears some overlapping characteristics due to
which it can be placed in more than one category. Also, economic classification does
not serve the purpose when companies are in different lines of business. Hence, a
judicious and rigorous analysis is essential to identify merger motives.

1.2.8. Difference between Merger and Acquisition

A fundamental characteristic of merger is that the acquiring company takes over the
ownership of other companies and combines their operations with its own operations
whereas an acquisition may be defined as an act of acquiring effective control by one
company over assets or management of another company without any combination of
companies.97 Thus, in an acquisition, two or more companies may remain independent,
separate legal entity but there may be change in control of companies.

Mergers and amalgamations are regulated by Companies Act, 1956. Chapter V of

Companies Act, 1956 contains statutory provisions relating to mergers and
amalgamation from sections 390 to 396A. Whereas the regulatory framework for
controlling acquisitions of a company consists of section 372 of Companies Act, 1956,
clause 40A and clause 40B of the Listing Agreement and SEBI Takeover Code. Above
all, basic difference between a merger and an acquisition is that in case of merger, the
entire assets and liabilities of the transferor company are transferred to the transferee

96
For further details, See S. Ramanujam, 2012, pp. 203-206.
97
I.M. Pandey, 2000, p. 1097.
25
company, whereas, in case of acquisition the acquirer only gets voting rights in the
target company by virtue of acquiring the shares.

1.2.9. Amalgamation

The term ‘merger’ and ‘amalgamation’ are used interchangeably to denote the fusion or
combination of two or more companies into a single company, where one survives and
the other(s) looses its/their corporate entity, thus being dissolved/wound up without the
process of winding up and the process is carried out through a ‘scheme’ requiring
sanction of the court. However, in the micro sense, merger is different from
amalgamation.98 While all amalgamations are necessarily mergers, all mergers may not
necessarily be amalgamations as merger may take place in the form of amalgamation or
absorption.

Halsbury Laws of England describe amalgamation as:

“A bending of two or more existing undertakings into one company, the

shareholders of each blending company becoming substantially the
shareholders in the company which is to carry on the blended
undertaking.”99
The Supreme Court has tried to explain its meaning in Saraswati Industrial Syndicate
Ltd. V. CIT,100 as follows:

“Amalgamation or reconstruction has no precise legal meaning. In

amalgamation two or more companies are fused into one by merger or by
taking over by another, when two companies are merged and are so
joined as to form a third company or one is absorbed into one or blended
with another, the amalgamating company loses its identity… The true
effect and character of the amalgamation largely depends on the terms of
the scheme of merger. But there cannot be any doubt that when two
companies amalgamate and merge into one, the transferor company loses
its identity as it ceases to have its business. However, their respective
rights or liabilities are determined under the scheme of amalgamation.”

The new company comes into existence after amalgamation having all the property, rights
and powers and subject to all the duties and obligation, of both the constituent companies.

98
J.C. Verma, 2009, p. 60.
99
Halsbury’s Laws of England, 4th Edition, Vol. 7, p. 1539.
100
AIR 1991 SC 70.
26
Explaining the object of an amalgamation and the scheme of the statutory provision, the
Madras High Court observed in WA Beardsell and Co. P. Ltd. In re,101:

“The world ‘amalgamation’ has not been defined in the Act. The
ordinary dictionary meaning of the expression is ‘combination’. Judging
from the context and from the marginal note of Section 394 which
appears in Chapter-V relating to arbitration, compromises, arrangements
and reconstructions, the primary object of amalgamation of one company
with another is to facilitate reconstruction of the amalgamating
companies and this is a matter which is entirely left to the body of
shareholders, (and) essentially an affair relating to the internal
administration of the transferor company. The decision of the body of
shareholders ought not to be lightly interfered with.”

The Andhra Pradesh High Court in S.S. Somayajulu v. Hppc Prudhomme and Co.,102
that the word ‘amalgamation’ has no definite legal meaning. It contemplates a state of
things under which two companies are so joined as to form a third entity, or one
company is absorbed into and blended with another company. Amalgamation does not
involve a formation of a new company to carry on the business of the old company.

The Madhya Pradesh High Court reiterated Patrakar Prakashan Pvt. Ltd., In re,103 that
amalgamation is an organic unification or amalgamation of two more entities or
undertakings, or fusion of one with the other. There is no bar to more than two
companies being amalgamated under one scheme.

It has been laid down by the Supreme Court in General Radio and Appliance Company
Ltd. v. MA Khader,104 that after the amalgamation of two companies, the transferor
company ceases to have any identity and the amalgamated company acquires a new
status and it is not possible to treat the two companies as partners or jointly liable in
respect of their assets and liabilities. The true effect and character of amalgamation
largely depends upon the terms and conditions of the scheme of merger.

Generally, the company which merges or amalgamates is known as ‘amalgamating

company’ or ‘transferor company.’ The company into which the amalgamating or

101
(1968) 38 Com Cases 197 (Mad.) at p. 204.
102
(1963) 2 Comp LJ 61 (AP).
103
(1997) 13 SCL 33 (MP).
104
(1986) 2 Comp LJ 249 (SC).
27
transferor company mergers or amalgamates is known as ‘amalgamated company’ or
‘transferee company’. The corporate identity of the transferor company ceases to exist
after the amalgamation.

As per Income Tax Act, 1961, merger is defined as amalgamation under section 2(1 B)
with the following three conditions to be satisfied:

All the properties of amalgamating company(s) should vest with the

amalgamated company after amalgamation.

All the liabilities of amalgamating company(s) should vest with the

amalgamated company after amalgamation.

Shareholders holding not less than 75% in value or voting power in

amalgamating company(s) should become shareholders of amalgamated
companies after amalgamation.

This does not however include shares already held by shareholders of amalgamating
companies in the amalgamated company.

1.2.10. Difference between Merger and Amalgamation

As is evident from the definitions given above the term ‘merger’ and ‘amalgamation’
are quite synonymous and can be interchangeably used and denote the situation when
two or more companies, keeping in view their long term business interests, combine
into one economic entity to share risks and financial rewards. However, in the micro
sense, there is difference between the two.

(1) Meaning: Merger generally refers to a circumstance in which the assets and
liabilities of a company (merging company) are vested in another company (the merged
company). The merging entity loses its identity and its shareholders become
shareholders of the merged company. On the other hand, an amalgamation is an
arrangement, whereby the assets and liabilities of two or more companies
(amalgamating companies) become vested in another company (the amalgamated
company). The amalgamating companies all loose their identity and emerge as the
amalgamated company; though in certain transaction structures the amalgamated

28
company may or may not be one of the original companies. The shareholders of the
amalgamating companies become shareholders of the amalgamated company.105

(2) Scope: While all amalgamations are necessarily mergers, all mergers may not
necessary be amalgamations as merger may take place in the form of amalgamation or
absorption. In amalgamation, at least two companies which are merged go into
liquidation, a new company is formed to take over the business of at least two
companies which are liquidated, whereas in merger in addition to above case,
absorption is also included, where no new company is formed, one company (which
goes into liquidation) is absorbed into another which retains its legal entity.

(3) Purpose: Merger is commonly used for the fusion of two companies. Merger is
normally a strategic vehicle to achieve expansion, diversification, entry into new
markets, acquisition of desired resources, patents and technology. It also helps
companies in choosing business partners with a view to advance long term corporate
strategic plans. Mergers are also considered as a revival measure for industrial sickness.
Amalgamation is an arrangement for bringing the assets of two companies under the
control of one company, which may or may not be one of the original two companies.
Amalgamation signifies the transfer of all or some part of the assets and liabilities of
one or more existing business entities to another existing or new company.106

The merger also differs from a consolidation, wherein all the corporations terminate
their existence and become parties to a new one.107

1.3. Motives and Reasons for Mergers

The research literature on M&As deals with the topic of merger motives quite
extensively. The reasons why mergers take place are of continuing research. There are
always many reasons that appear to apply to each merger but researchers are usually
searching for few general principles that would explain broad pattern of merger
activity.108

105
Nishith Desai Associates, “Mergers and Acquisitions in India: With Specific References to
Competition Law”, July 2013, retrieved from www.nishithdesai.com/fileadmin/user upload/pdfs/
research/20%papersmergers/20%26%20acquisitions%20in%20india.pdf, accessed on 1 February
2014 at 7.11 pm.
106
The Institute of Companies Secretaries of India, 2010, pp. 10-11.
107
Black’s Law Dictionary, quoted in J.C. Verma, 2009, p. 61.
108
Gurminder Kaur, 2005, p. 37.
29
Most important motive behind M&As is growth. But apart from growth, there are
various other important motives of M&As. Hence, here we will highlight few important
motives of M&As with the help of real examples from the Indian context. These
motives have been delineated by the researcher by going through the M&A deals
happening in India from the starting uptill 2014. Motives are the benefits that a firm
perceives from M&As and hence act as a propeller for undertaking them.109 The
purpose of the researcher here is to describe the strategies and financial imperatives that
have been driving the corporates towards M&As and identify such factors with real life
merger cases. The primary motives behind corporate mergers and acquisitions are
presented in this section.

1.3.1. Synergy

The primary motivation for most mergers is to increase the value of the combined
enterprise.110 Synergism exists whenever the value of a combination is greater than the
sum of the values of its parts. In other words, synergism is 2+2=5 111 i.e. if companies A
and B merge to form company C, and if C’s value exceeds that of A and B taken
separately, then synergy is said to exist. Such a merger is beneficial to both A’s and B’s
shareholders. The celebrated HLL-TOMCO merger in 1993 is a case of synergistic
merger. HLL which had a powerful presence in the premium soaps with Liril,
International Lux, Pears and Le Sancy needed one to target the middle class, TOMCO’s
Haman, OK and Moti were perfect. Similarly, TOMCO’s super 501 complemented
HLL in the detergent segment.

It is assumed that existing undertakings are operating at a level below optimum. But
when two undertakings combine their resources and efforts, they may with combined
efforts produce better results than two separate undertakings because of savings in
operating costs viz. combined sales offices, staff facilities, plants management, etc.
which lower the operating costs.112 The greater value is ultimately expected to result
into higher earnings per share for the merged entity.

109
Id., p.262.
110
Eugene F. Brigham et al., 1999, p. 797.
111
V.K. Bhalla, 1998, p. 1144.
112
J.C. Verma, 2009, p. 77.
30
Synergy means working together. The gains obtained by working together by
amalgamated undertakings result into synergistic operating gains. These gains are most
likely to occur in horizontal mergers in which there are more chances for eliminating
duplicate facilities. In the Indian context merger of Hindustan Computer, Hindustan
Reprographics, Hindustan Telecommunications and Indian Computer Software
Company into HCL Limited exhibited synergy in transfer of technology and resources
to enable the company to cut down imports of components at a very high import duty.

Likewise one firm may have a strong research and development (R&D) team whereas
the other may have a very efficiently organised production department as happened in
the case of Daiichi Sankyo and Ranbaxy deal, the Daiichi Sankyo had a strong R&D
department and Ranbaxy had a strong manufactory unit. The merged unit in all the
above cases and the other similar ones will be more efficient than the individual firms.
And, hence, the combined value of the merged firms is likely to be greater than the sum
of the individual entities.113 Even Gujarat High Court in Safal Realty (P.) Ltd., In re,114
highlighted the synergies from the merger of Deep Infrastructure (P.) Ltd. and Safal
Infrastructure (P.) Ltd.-the transferor companies with Safal Realty (P.) Ltd.-the
transferee company. The Court remarked:

“Consolidating all the operations under one company would lead to

benefits of economies of the scale, make administration easier and
control systems more efficiently. The amalgamated company would be
in a position to maximise its profits through optimum utilisation of its
resources and minimising administration and operational costs. This will
also result in enhancement of financial strength and flexibility. It will
also give the amalgamated entity a competitive edge in the market due to
enhanced product range, increased research capabilities and establish
distribution network. Thus the amalgamation would be in the mutual
advantage of both the transferor and the transferee companies.”

113
M.Y. Khan and P.K. Jain, 2009, p. 33.3.
114
(2010) 98 SCL 39 (Guj.).
31
There are Five Main Types of Synergies:

(1) Manufacturing Synergy: The manufacturing synergy results from combining the
core competences of the acquirer company and target company in different areas of
manufacturing, technology, design and development, procurement etc. or it could also
result from rationalisation of the usage of the combined manufacturing capacities of the
both the firms. As an illustration, when Mahendra and Mahendra acquired Jiangling
Motors of China, it resulted in manufacturing synergy due to combination to M&Ms
design and development strength with low cost manufacturing capabilities of
Jiangling.115

Another illustration of manufacturing synergy is that of Tata Motors acquisition of

Daewoo’s Commercial Vehicles Unit (DWCV) which armed Tata Motors with
technology of producing commercial vehicles in the 200-400 bhp range. Earlier, it had
technology for commercial vehicles upto 200 bhp only.

(2) Operations Synergy: A combination of two or more firms may result into cost
reduction due to operating economies. Operating synergies arise as a rule from the
combination or fusion of individual functional areas within the new company.116
Operating synergies will result from elimination of duplicate channels of distribution,
creation of centralised training centre, integration of planning and control system etc.

The transfer of knowledge is another operative synergy that arises in businesses,

combinations as different corporate divisions combine their competences and
abilities.117 As an illustration, when Kingfisher Airlines acquired Deccan Airways, Jet
Airways acquired Sahara Airlines, both were expecting operating synergies through
rationalisation of routes, reduction in the combined number of flights on the same
routes, sharing of commercial and ground handling staff, reduction in the combined
number of airplanes in use and so on.

115
Prasad G. Godbole, 2009, p. 50.
116
Kamal Ghosh Ray, Mergers and Acquisitions: Strategy, Valuation and Integration, PH1 Learning
Private Limited, New Delhi, 2010, p. 3.
117
Ibid.
32
(3) Financial Synergy: There are many ways in which merger can result in financial
synergy and benefits.118 They are:

(i) Eliminating Financial Constraint: A company having financial constraints cannot

expand or grow organically or internally. It can grow externally or inorganically by
acquiring another company by exchanging of shares instead of paying cash.

(ii) Surplus Cash: On the other hand, a company having surplus cash will find an
appropriate opportunity to invest its cash. If surplus cash is used to acquire another
company, the shareholders wealth may increase through an increase in the market value
of the shares.

(iii) Increase in Debt Capacity: Debt capacity also increase when two firms combine
thereby making their earnings and cash flows more stable and predictable. This enables
them to borrow more than they could have as individual entities.119 In fact, merged
firms often can obtain lower rates than could be obtained if each firm borrowed
individually.120

(iv) Lowering of the Financing Costs: Since, the probability of insolvency is reduced
due to financial stability and increased protection to lenders, the merged firm should be
able to borrow at a lower rate of interest. Moreover, a merged firm is able to realise
economics in floatation and transaction costs related to an issue of capital. Issue costs
are saved when the merged firm makes a larger security issue.121

When R.P. Goenka’s Ceat Tyres sold off its tyre cord division to Shriram Fibres Ltd. in
1996 and its fiberglass division to FGP Ltd, it was with the aim to achieve financial
synergies.

(4) Managerial Synergy: If one of the companies has more efficient and skilled
management then the other company can get benefit of the highly efficient and skilled
management which will result in managerial synergies. This may occur if the existing
management team, which is performing poorly is replaced by a more effective

118
I.M. Pandey, 2007, p. 676.
119
Pooja Chaudhary, July 2010, p. 952.
120
Emphrain Clark, International Financial Management, Cengage Learning India Pvt. Ltd., New
Delhi, 2002, p. 613.
121
I.M. Pandey, 2007, p. 676.
33
management team. Often a firm, plagued with managerial inadequacies, can gain
immensely from the superior management that is likely to emerge as a sequel to the
merger.122 The badly managed companies are often the ones benefiting the most from
M&As because it is often the only way that incompetent managers can be ousted. In
other words, top management of one company can use its skill to help improve the
performance of another company. For example, in HLL-TOMCO merger, HLL ensured
that merger becomes a success by duplicating its excellent management practices in
TOMCO.

(5) Marketing Synergy: These synergies occur when merged organisation benefits from
common distribution channels, sales administrators, advertising, sales promotion and
warehouse facilities.123 It also involves leveraging on the brand equity of one of the two
companies to push the sale of the other company’s products.124 When Dilip Pirmal
Blow Plast acquired Universals Luggage, the idea was to use the common distribution
channel and sales force to push both the companies products, which were targeted at the
same market segments except for pricing differences and thereby effect a substantial
savings in sales force and other marketing costs.125 Similarly, the Industrial Credit and
Investment Corporation of India (ICICI) acquired Indian Tobacco Company, ITC
Classic and Anagram Finance to obtain quick access to a well dispersed distribution
network.126

1.3.2. Growth

M&As are motivated with a view to sustain growth or to accelerate growth. Expansion
and growth through M&As is less time consuming and more cost effective. Instead of
going through the time consuming process of internal growth or diversification, the firm
may achieve the same objective in a short period of time by merging with an existing
firm. In addition, such a strategy is often less costly than the alternative of developing
the necessary production capability and capacity.127 Construction of new facilities takes
time and it may be more profitable to acquire the existing facilities of another
122
Prasanna Chandra, 1993, p. 293.
123
Gurminder Kaur, 2005, p. 267.
124
Prasad G. Godbole, 2009, p. 50.
125
Id., p. 51.
126
Gurminder Kaur, 2005, p. 267.
127
V.K. Bhalla, 1998, p. 1144.
34
company.128 Growth is essential for sustaining the viability, dynamism and value-
enhancing capability of a company and also one the most important motive behind
M&A activity.

1.3.3. Enhanced Profitability Due to Economies of Scale

Economies of scale arise when increase in the volume of production leads to a reduction
in the cost of production per unit. Merger may help to expand volume of production
without a corresponding increase in fixed costs. Thus, fixed costs are distributed over a
large volume of production causing the unit cost of production to decline.129 These
economies of scale arise because of more intensive utilisation of combined production
capacities, distribution channels, research and development facilities, data processing
systems, etc. as pooling of the resources will definitely bring about economies of scale.

It is found that economies of scale are most predominant in horizontal mergers as the
same kind of resources are available in the merging companies which can be utilised
intensively.130 Economies of scale are one of the most common reasons advanced for
entering into mergers.131 For example, the merger of TOMCO with HLL was with a
view to bring about substantial economies of scale due to better utilisation of combined
production capacities, distribution channel, purchasing set up, research and
development facilities, etc.

1.3.4. Diversification of Risk

The M&A route serves as an effective tool to diversify into new business. M&As are
motivated with the objective to diversify the activities so as to avoid putting all the eggs
in one basket and obtain advantages of joining the resources for enhanced debt
financing and better serviceability to shareholders. Such transactions result in creating
conglomerate organisation.132 Diversification implies growth through the combination
of firms in unrelated businesses. It is argued that it can result into reduction of total risk

128
Jack Broyles et al., Financial Management Handbook, Grover Publishing Company Limited,
Alderhot, Hants, 1983, p. 378.
129
I.M. Pandey, 2007, p. 675.
130
Vishal Majhee, 2008, pp. 28-29.
131
F.R. Levis, The Economies of Mergers, 1971, p. 20 as cited in Vishal Majhee, 2008, p. 29.
132
J.C. Verma, 2009, p. 77.
35
through substantial reduction of cylicability of operations. Total risk will be reduced if
the operations of the combining firms are negatively correlated.133 All the businesses go
through cycles. When a firm operates in many businesses, the downs in one can be
compensated by the ups in another.134

Moreover, the combination of management and other systems strengthen the capacity of
the combined firm to withstand the severity of the unforeseen economic factors that
could otherwise endanger the survival of individual companies. But critics hold that
diversification caused by merger of companies does not benefit the shareholders as they
can get better returns by having diversified portfolios by holding individual shares of
these companies.135 An example of diversification through mergers to reduce total risk
and improve profitability is that of RPG enterprises (Goenka group). The group started
its takeover activity in 1979. It comprises a large number of companies, most of which
have been taken over. The strategy has been to look out for any foreign disinvestment,
or any cases of sick companies, which could prove right target at low takeover prices. In
1988, RPG took over ICIM and Harrisons Malayalam Limited.136

1.3.5. Tax Considerations

Many mergers are motivated by the aim of achieving benefits and concessions under
direct and indirect tax laws of the country. In the Indian context, savings in tax are the
most important motivation behind the mergers. In 1970 and 80’s most mergers in the
Indian context took place to avail the tax benefit. Tax laws of our country allow a
company to carry forward its losses and set up them against its future earnings. But a
loss making or sick company may not be in a position to earn sufficient profits in future
to take advantages of the carry forward provision. If it combines with a profitable
company, the combined company can utilise the carry forward loss and save taxes.137
These benefits are mainly by virtue of Section 72A of the Income Tax Act, 1961 which

133
I.M. Pandey, 2000, p. 1101.
134
Sanjay Gupta, “Merger and Amalgamation-An Overview”, retrieved from www.caclubindia.com/
articles/merger-and-amagamation-in-overview-9561.aspn, accessed on 1 February, 2014 at 7:18 pm.
135
J.C. Verma, 2009, 77-78.
136
I.M. Pandey, 2000, p. 1102.
137
Ibid.
36
contains provisions relating to carry forward and set off accumulated loss and
unabsorbed depreciation allowance in amalgamation.

A number of companies in India have merged to take advantage of this provision. An

example of a merger to reduce tax liability is the absorption of Ahmedabad Cotton Mills
Limited (ACML) by Arbind Mills in 1979, ACML had an accumulated loss of Rs. 3.34
crores. Arbind Mills saved about Rs. 2 crores in tax liability for the next two years after
the merger because it could set-off ACML’s accumulated loss against its profits. Yest
another example of a merger induced by tax saving in 1990’s is that of Godrej soaps
with Gujarat Innovative Chemicals. The post merger company restructured its gross
profits of Rs. 49.08 crores which lead to reduction of effective tax burden of Rs 1.05
crores.138 Merger of ailing Rohit Mills with health Arbind Mills gave a tax break of Rs.
22.21 crores to Arvind Mills.139

1.3.6. Increase in Market Power and Market Entry

Acquiring Companies with good manufacturing and distribution network or established

brands gives the advantage of increase in market power and gaining market leadership.
Example of this is Tata-Corus merger. In this case Tata steel had a capacity of around 5
million tones before merger whereas Corus had a capacity of around 22 million tones.
Its acquisition of Corus in 2007 made it fifth largest global steel company from fifty-
sixth global steel company. Thus increase in market power is one of the frequent given
reason for mergers as competition inevitably leads to lower prices and lower profits

Through M&As, the market leaders can further consolidate their position as happened
in the merger of Arcelor-Miltal. Mittal steel was already global market leader in steel
but when it acquired Arcelor, the second largest steel company in the world, it left its
competitors like Nippon (now second largest steel producer) far behind.

Entry into new market and market penetration are another important motives of M&As.
Market Penetration means developing new and large markets for a company’s existing
products. Market penetration strategy is generally pursued within markets that are

138
Ibid.
139
Gurminder Kaur, 2005, p. 275.
37
becoming more international and global. Cross-border mergers are a means of
becoming or remaining major players in such markets. To gain access to new markets,
they prefer to merge with a local established company which knows behaviour of
market and has established customer base.140 For example, Vodafone’s acquisition of
Hutchison Essar was with a view to gain entry into Indian market, Daiichi Sankyo
acquired Ranbaxy for this purpose only. Earlier Whirlpool Corporation entered or
penetrated into Indian market by acquiring Kelvinator India. Coca cola while re-
entering Indian market in 1993 acquired Parle’s Thums up, Gold Spot and Limca
brands, which were quite established in Indian market to gain nationwide bottling and
marketing network.

1.3.7. Access to Inputs and Technology

In a vertical merger with backward linkage, a company can acquire source of raw
material which will ensure consistent supply. Thus M&A help us with access to raw
materials, to technology, latest innovations and cheap and productive labour. The
inability to keep pace with the changing technology or to graduate to a higher
technology are important motives for mergers. Further, the rising costs of R&D along
with uncertainties of technological change have forced many firms to co-ordinate with
each other in global markets through various combinations and strategic alliances to
fund research expenditure for new products.141 For example, Ranbaxy agreed for its
deal with Daiichi Sankyo so that it could utilise its highly advanced and well-developed
R&D facilities. In generalised context also in pharmaceutical sector, the large R&D
costs required to develop new generation of drugs is considered the major driving force
for the recent spate of M&A activity in the pharmaceutical sector. The Compaq
computers hold in the lower end product segment and Digital’s strength in mini
computers was brought together by Compaq-Digital merger. Similarly, when a new and
important application gradually gains on existing products – as in the case of electronic
locomotion over steam locomotion the best way out for a company making traditional
products is to be acquired or merged by the producer of the new equipment, by selling

140
Id., p. 273.
141
Ibid, p. 278.
38
its goodwill and other usable assets. Mergers based on product innovations will increase
with the march of progress in inventions. This applies with special force to science
based industries.142

1.3.8. Global Competitiveness

Globalisation and liberalisation have forced various business entities to restructure

themselves by way of mergers, demergers and acquisitions. In a free competitive and
globalised world, it is necessary for a company to be placed in such a manner that it is
in position to compete with the best in the world.143 This could easily be achieved
through mergers and amalgamations. The challenged posed by hyper competitive
capitalism and globalisation have thrown Indian industry in excel or exit environment
and has demanded that Indian industries also restructure. They have to increase their
capacity, induct new technology and develop export markets, if they want to compete
with MNCs with vast resources, advanced technology and enviable managerial skill.
Thus, to acquire global competitive strength, cross-border mergers and amalgamation
are being resorted to. The acquisition of Tetley Tea, the world’s largest tea brands by
Tata Tea was with a view to achieve global competitive strength.

1.3.9. Other Benefits

In addition to above major benefits, a few others can also be delineated.

(1) Free Cash Flows: Through mergers surplus funds of one company could finance
the plans of the company without it. Thus, mergers offer an effective way to ensure
smooth cash flow. An example of this is Unilever group 1996 (merger of BBLIL and
Lever) which was formed with sole motive of allowing surplus funds of Lever to travel
freely to boost the plans of BBLIL. This shows that mergers not only allow companies
to pool management resources and manpower but also enable them to gain economic
advantages by re-deploying financial resources.

(2) Complementary Internal Fund Flows: Seasonal or cyclical fluctuation in funds

flows sometimes may be reduced or eliminated by merger. If so, financial synergism as

142
Nicholas A.H. Stacey, 1966, pp. 34-35.
143
Bhasin, “Mergers and Acquisitions: An Overview”, Manupatra Newslines, Vol. 1, Issue 7, December
2006, pp. 11-13, p. 11.
39
a result of merger will result in reduction of working capital requirements of the
combined firms compared to those standing alone.144

(3) Revival of a Sick Unit: If a viable unit has become sick, it can be merged with a
healthy unit for its revival. In India, BIFR (Board for Industrial and Financial
Reconstruction) approves such mergers. BIFR found revival of ailing companies
through the means of merger with healthy company as the most successful route for
revival of their financial health.145 On the other hand, it also allows the healthy unit to
reap the benefit of the hidden potentials of the sick unit.

(4) Balancing Product Cycle: Combining with a complementary industry to

compensate for the boom and doom in a product cycle might be a good strategy for an
organisation. For example, if the main product is seasonal-say sugar-it will be beneficial
to add another non-seasonal product, say ceramics, in the organisational fold.146 Thus,
balancing product cycle, is an important motive for M&As.

(5) Personal Motives: Most of the people view that M&As are based on economic
reasons only but the reality is that, many M&As are based more on manager’s personal
motives. Sometimes, top management enter any merger to satisfy their egos as business
leaders like power and more power is attached to running a larger corporation than a
smaller one. No executive would admit that egos are the primary reason behind many
mergers, but egos do play a prominent role. Mergers enhance the power and prestige of
the existing management by adding glamour and greater interest to the company.147
Further, it has been observed that executive salaries are highly correlated with company
size the bigger the company, the higher the salaries of its top officers. This too could
play a role in corporate acquisition programs.148 The human resources or the managerial
staff feels motivated by the assurance of growth as a result of M&As.

(6) Combining Complementary Resources: Complementary goods are those whose

usefulness increases when they are used together. Some obvious examples are cigarettes
and matches, peanut butter and jelly etc. In M&As, gains from combining
144
V.K. Bhalla, 1998, p. 1145.
145
Gurminder Kaur, 2005, p. 279.
146
Ravi M. Kishore, 2002, p. 718, para 18.5-1.
147
George C. Phillippatos, Financial Management, Holden Day Inc., San Francisco, 1973, p. 631.
148
Eugene F. Brigham, 1999, p. 799.
40
complementary resources occur if each acquires something that the other has more
cheaply than it could have if acted on its own.

An example is the large computer software company that acquires a software firm with
a unique program but where the latter is too small to produce and market it on a large
scale. The large firm gets the unique program that would cost much more if it tried to
produce it on its own and the small firm gets the production and marketing expertise
that it lacks.149

(7) Resource Transfer: In many cases, resources are unevenly distributed across firms
and the interaction of target and acquiring firm resources can create value through
combining scarce resources.

(8) Acquisition of Valuable Intellectual Property Rights: It is worth mentioning that

intellectual capital has become critical to the industry. Indeed, in the ‘new economy’
brand names i.e. trademarks, service marks and patents are as important as the goods
and services in connection with which they are used in creating a competitive
advantage. Acquiring a well established company will enable the acquirer company to
use its precious intellectual property rights such as brand name, trademarks, patents and
designs etc. and gain immense benefits.

(9) General Gains: In addition to above purposes or motives of mergers, few general
gains can be further highlighted:

To improve earning per share.150 To avoid unhealthy competition by acquiring

the competitor. It is said if you can’t fight them, join them.

To arrest downward trend in the industry by taking-over business belonging to a

young and potential industry.

To reduce gestation period for new business.

To improve its own image and attract superior managerial talents to manage its
affairs.

To offer better satisfaction to consumers.

149
Emphraim Clark, 2002, p. 612.
150
For further details, see, Ephraim Clark, 2002, pp. 613-614.
41
1.4. Advantages of Mergers and Acquisitions

As we have already discussed the multitude of gains and motives of M&A, there are
certain advantages which accrue to the organisation, shareholders, promoters, managers
and consumes. They will be discussed hereunder:

(1) Benefit to the Organisation: Mergers and takeovers are permanent form of
combinations which vest in management complete control and provide centralised
administration which are not available in combinations of holding company and its
partly owned subsidiary.151 These are the general advantages which accrue to the
organisation besides multitude of gains already discussed in the previous topic.

(2) Benefit to the Shareholders: The shareholders of the acquired firm benefit the most
in the form of huge increments in wealth which result from the premium paid by the
acquirer company to induce acceptance of the merger or takeover. The acquirer
company usually has to offer price more than the book value of shares to induce
shareholders to sell their shares. Moreover, when information about a potential takeover
trickles in the market, price of the target company stock moves upwards. On the other
hand, shareholders of the buying company gain premium in the long run with the
growth of the company not only due to synergy but also due to ‘boots trapping
earnings’.152

(3) Benefits to the Promoters: Promoters gain from mergers as they lead to increase in
size of the company. A company having shortage of funds can easily grow through this
route. A private limited company can be converted into public company without
contribution of much wealth by the promoters and without loosing control. In the
mergers of HCL as quoted previously, only Hindustan Reprographics Ltd. was a public
company whereas the other three were private limited companies. The promoters of the
Hindustan Computers were allotted shares worth Rs. 1.27 crores on merger in a new
company called HCL. This gave them an 86% stake in HCL’s equity of Rs. 1.48 crore
shares. This gain was against their original investment of meagre Rs. 40 lakhs in

151
J.C. Verma, 2009, p. 79.
152
J.C. Van Horne, Fundamental of Financial Management, 5th edition, Prentice Hall of India, New
Delhi, 1985, p. 530.
42
Hindustan Computers and they did not invest any money extra in getting shares worth
Rs. 1.27 crores.153

(4) Benefits to Consumers: As we have already discussed, mergers lead to economies

of scale i.e. consumers get quality goods at lower prices. As M&As also enable an
organisation access to better technology, the consumer will get new innovative products
at competitive prices. This will raise their standard of living and quality of life.

1.5. Disadvantages of Mergers

Merger of two companies in the same field may result in reduction in the number of
competing firms in an industry and dilution of competition in the market, adversely
affecting consumers’ interest. In a merger or amalgamation, an individual competitor,
be it an actual or potential competitor, may get eliminated or a large unit may take into
its fold an efficient and growing medium or small–sized undertaking. Another adverse
feature can be that the larger undertaking consequent on merger, may exercise a market
power to the detriment of its customers and suppliers.154 In some cases, mergers may
have negative impact on human resources as there is retrenchment of certain employees
and the result is unemployment in the economy.

Yet another adverse feature that can surface is, if a large undertaking after merger
because of the resulting dominance becomes complacent and suffers from deterioration
over the years in its performance can be prejudicial to public interest.155 Therefore,
mergers can result in acquisition of enormous economic strength by the resultant
undertakings, discouragement of new entrants in the markets, elimination of healthy
competition, dictation of prices by the large merged undertakings and the exercise of
dominance by the merged entities. i.e. it creates a monopoly position in the market.
Such monopolies affect social and political environment to tilt everything in their
favour to maintain their power and expand their business empire. But this situation can
be handled by formulating a suitable anti-trust policy. Moreover, in a free economy, a
monopolist does not stay for a longer period as other companies enter into the field to
reap the benefits of high prices set in the by the monopolist. This enforces competition

153
J.C. Verma, 2009, p. 80.
154
S. Chakravarthy, “Two Heads Better than one”, The Hindu Business Line, 17 June 2002, p. 8.
155
Ibid.
43
in the market as consumers are free to substitute the alternative products.156 Therefore it
is difficult to generalise that mergers affect the welfare of the general public adversely
or favourably. Every case of merger has to be viewed distinctly in the background of
surrounding circumstances.

1.6. Evolution and Trends of Mergers and Acquisitions in India

Today, mergers and acquisitions are widely used as a mode of corporate restructuring
all over the industrial countries, but the historical development of the mergers has been
characterised by various important and discontinuous periods of intense activity.157
International mergers and acquisitions (M&As) movements are usually associated with
the behaviour of US firms over the last century. Merger activity has been identified by
various authors in terms of waves of clustering activities of US firms and their
behaviour during various periods.158 Most of them have classified them into five phases.
Each of these major merger movements was more or less dominated by a particular type
of merger and occurred when the economy sustained high rates of growth and coincided
with particular development in business environment.159 But if we study those merger
movements here, it will broaden the scope of the thesis. As the study focuses on M&As
in India, so lets’ study and focus our attention on evolution and trends of M&As in
India during various periods. No major study has been done on this topic in India. But
my research aims to fill the lacuna in this field. Evolution of M&As in India are
classified into three phases which are as follows:

1.6.1. Mergers and Acquisitions during Pre-independence Period in India

Due to colonial past, the picture is not too clear about the pre-independence times, still
whatever information the researcher could collect is reproduced here. During the
colonial period, Indian business activities remained suppressed due to exploitative
policies of the British rule, however Indian industrial empire vanished from the
industrial activities of the pre-independence era.160 M&A activities were very rare in the

156
J.C. Verma, 2009, p. 81.
157
George C. Phillippatos, Financial Management, Holden Day Inc., San Francisco, 1973, p. 625.
158
J. Fred Weston et al., 1990, p. 8.
159
Ibid.
160
Anil Kumar Kanugo, “Internationalisation of Indian Firms and Overseas Investment: A Key Strategy”,
retrieved from www.freit.org/WorksingPapers/ForeignInvestment/FREIT384.pdf, accessed on 1
February 2014 at 7.30 pm.
44
pre-independence era. But that situation changed after the post-war period (i.e. the
Second World War). M&As have played an important role in the transformation of the
industrial sector in India since the Second World War period. The economic and
political conditions during the Second World War and post-war periods gave rise to a
spate of M&As.161 The inflationary situation during the wartime enabled many Indian
businessman to amass income by way of high profits and dividends and black money.

This led to wholesale infiltration of businessmen in industry during war period giving
rise to hectic activity in stock exchanges. There was a craze to acquire control over
industrial units in spite of swollen prices of shares. The practice of cornering shares in
the open market and trafficking of managing agency rights with a view to acquire
control over the management of established and reputed companies had come
prominently to light. The net effect of these two practices, viz. of acquiring control over
ownership of companies and of acquiring control over managing agencies, was that
large number of concerns passed into the hands of prominent industrial houses of the
country.162 As it became clear that India would be gaining independence, British
managing agency houses gradually liquidated their holdings at fabulous prices offered
by Indian business community. Besides, the transfer of managing agencies, there were a
large number of cases of transfer of interests in individual industrial units from British
to Indian hands. Further, at that time, it used to be the fashion to obtain control of
insurance companies, for the purpose of utilising their funds to acquire substantial
holding in other companies. The industrialists also floated banks and investment
companies for furtherance of the objective of acquiring control over established
concerns.163

In the run up to independence, the Indian industry began to feel that the private sector
will play a key role in accentuating the growth of the Indian economy.

1.6.2. Mergers and Acquisitions during Post-independence Period in India

Although there were quite a few number of M&As in the period immediately following
independence, the restrictive policy regime of 1960s and 1970s deterred M&A activity

161
Kothari (1967) as quoted in Rabi Narayan Kar, Mergers and Acquisitions of Enterprises: Indian and
Global Experiences, New Century, Publications, New Delhi, 2006, p. 48.
162
Rabi Narayan Kar, 2006, pp. 48-49.
163
Id., p. 49.
45
in India. The policy regime was too restrictive in nature under Indira Gandhi
administration since 1966. Old controls returned with more restrictive and complex new
regulations.164 To prevent unhealthy practices entering into its economic systems which
are detrimental to public welfare, a series of governmental regulations were introduced
for controlling the operations of large industrial organisation in the private sector.
Important regulations among these were the Industrial Development and Regulation
Act, 1951, Monopolies and Restrictive Trade Practices Act, 1969 and Foreign Exchange
Regulation Act, 1973. The MRTP Act imposed strong measures to curb the economic
power of top business houses. According to this Act, a company or a firm has to follow
a pressurised and burdensome procedure to get approval for M&As. The MRTP Act
regulated on the expansion of an enterprise, establishment of new enterprise, division of
undertakings, consolidation of undertakings, acquisition and transfer of shares of
undertakings in order to check concentration of economic power, control the growth of
monopolies and prevent various restrictive trade practices likely to result from the
operation of economic system.165

In this pre reform era, splitting of capacities was encouraged due to licensed raj even at
the cost of economics of scale and other related benefits.166 FERA also looked upon
takeovers with contempt by putting lot of restrictions on foreign investments coming in
India. As a part of highly restrictive foreign exchange monitoring process, every
proposal had to be placed before an inter-ministerial committee on joint venture for
approval.167 Thus the anti-big government policies and regulations of the 1960s and
1970s seriously deterred M&As.

Due to the existence of strict government regulations, Indian companies were forced to
go to new areas where capabilities were difficult to develop in the short run. In pursuit
of this growth strategy, they often change their organisation and basic operating

164
Anil Kumar Kanugo, “Internationalisation of Indian Firms and Overseas Investment: A Key Strategy”,
retrieved from www.freit.org/WorksingPapers/ForeignInvestment/FREIT384.pdf, accessed on 1
February 2014 at 7.30 pm.
165
Gurminder Kaur, 2005, p.1.
166
“Mergers and Acquisitions: An Introduction”, retrieved from http://www.mergerindiainfo.com/intro/
maintro01.html, accessed on 2 December 2012 at 10.00 am.
167
Anil Kumar Kanugo, “Internationalisation of Indian Firms and Overseas Investment: A Key Strategy”,
retrieved from www.freit.org/WorksingPapers/ForeignInvestment/FREIT384.pdf, accessed on 1
February 2014 at 7.30 pm.
46
characteristics to meet the diversified businesses and management.168 All these
initiatives were aimed at curtailing the power of the big business houses and dealing
with the adverse consequences of the absence of price competition among the
established business groups.

But in some cases, Government encouraged M&As. For instance, new provisions
granting tax relief were introduced in the Finance Bill of 1967. In addition to that
Government encouraged M&As for sick units also. For example, the National Textile
Corporation took over a large number of sick textile units and the nationalisation of life
insurance business in 1956 lead to the formation of Life Insurance Corporation in 1956
which took over 243 insurance companies.169

But in 1970’s a number of mergers took place to avail tax benefits due to introduction
of new provisions granting tax relief in the Finance Bill of 1977. The introduction of
Section 72A in the Income Tax Act in 1978 led to takeover of sick units by profitable
ones. Section 72A allows profitable company (with whom sick company has merged) to
carry forward the accumulated losses of sick companies. An example of a merger to
reduce tax liability is the absorption of Ahmadabad Cotton Mills Ltd. (ACML) by
Arbind Mills in 1979. ACML had an accumulated loss of Rs. 5.34 crores. Arbind Mills
saved about Rs. 2 crore in tax liability for the next two years after the merger because it
could set off ACML’s accumulated loss against is profit. Another example of takeover
is of Sidhpur Mills by Reliance in 1979.170

However, it is found that most of the mergers centered around takeover of sick
industrial undertaking because of staggering industrial sickness and fiscal and other
incentives offered to revive the financial health of such sick industrial undertakings.
Mergers between two profit-making companies which occurred simply for economic
reasons were not common.171 But these policies which were introduced to promote
public welfare hampered the economic growth of our economy. Our economy lagged
far behind as compared to other economics of the world. So our government has to
review its entire policy framework and introduced economic liberalisation measures.

168
Rabi Narayan Kar, 2006, p. 50.
169
Id., p. 49.
170
I.M. Pandey, 2000, p. 1102.
171
Gurminder Kaur, 2005, p. 28.
47
1.6.3. Post-1990 Period

Though in the mid-seventies, the Government initiated certain liberalisation measures

like progressive loosening of import controls and permission to Indian companies to
raise foreign currency loans abroad and initiation of little steps towards liberalisation in
the post-1985 period, the real opening up of the economy started with the statement of
Industrial Policy made on 24th June 1991. In the era of globalisation and market
economy, the Industrial Policy Resolution of 1956 was found out of tune. The new
industrial policy of 24th July 1991 envisaged liberalisation and competitive
environment. Its main thrust has been to unfetter the spirit of enterprise and expose the
economy to greater competition, internal and external. The new industrial policy was in
drastic diversion to 1956 policy. The basic changes in the new policy relate to industrial
licensing, foreign investment and technology collaboration, the role of public sector and
the future treatment of large industrial houses governed by the MRTP Act.172 The
Industrial policy statement issued by the Government of India on the 24 th July 1991
stated:

“The attainment of technological dynamism and international

competitiveness requires that enterprises must be enabled to swiftly
response to fast changing external conditions that have become
characteristics of today’s industrial world. Government policies and
procedures must be geared to assisting entrepreneurs in their efforts. This
can be done only if the role played by the government were to be
changed from that of only exercising control to one of providing help
and guidance by making essential procedures fully transparent by
eliminating delays”.173

This resulted in the introduction of changes in policies relating to industrial licensing

foreign investment, technology imports and governmental ownership of industry. The
reforms also encompassed scrapping of monopolistic MRTP Act by deleting most of the
sections restricting the expansion of an enterprise, industrial deregulation, changes in
FERA, relaxation of regulations governing FDI, foreign capital and technology which

172
D.P. Mittal, Competition Law and Practice, 3rd Edition, Taxmann Publications (P) Ltd., New Delhi,
2011, p. 2.
173
Id., p. 3.
48
subjected Indian industry to a major restructuring. This restructuring process is leading
to an unprecedented rise in business strategies like mergers, demergers and acquisitions.

The present business environment has thus altered radically with the changes in
economic policies and introduction of new institutional mechanism. It is now
characterised by globalisation, opening up of the economy and necessity for
diversification.174 This industrial transformation has provided a launch pad for the
corporates to grow and expand through M&A strategy. With the increasing competition
and the economy heading towards globalisation, the corporate restructuring activities
are expected to occur at a much larger scale than at any time in the past, and are stated
to play a major role in achieving the competitive edge for India in international market
place.175

The strict government regulations of 60’s and 70’s could not fully stop M&A activity
prior to 1990s in India. Prior to 1990s, M&A strategy was employed by several
corporate groups like R.P. Goenka, Vijay Mallya and Manu Chhabria for growth and
expansion of the empire in India in the eighties. Some of the companies taken over by
RPG group included Dunlop, Ceat Tyres, CESC, KEC International, Phillips Carbon
Black etc. Mallya’s United Breweries (UB) group was straddled mostly by M&As,176
through its acquisition of Best and Crompton, Mangalore Chemicals, Western Indian
Enterprises, etc. Not only that, the NRI’s like Swaraj Paul (failed hostile takeover
attempt of Escorts and DCM) and the Chabrias (Shaw Wallace, Mather and Platt,
Hindustan Dorr Oliver, Dunlop, Falcon Tyres etc.) were also active in takeover bids.
Board for Industrial and Financial Construction (BIFR) has also been active in
arranging the merger of sick units with healthy ones as part of their revival package.177

Since the mid-nineties, the concept of mergers and acquisitions has caught like fire.
They have become very popular from all angles, policy considerations, businessman
outlook and even consumer point of view. Even though such transactions create

174
Gurminder Kaur, 2005, p. 2
175
Rajesh Dhawan, “Corporate Restructuring”, SEBI and Corporate Laws, 16-22, March 2009, Vol. 90,
pp. 123-135, p. 124
176
Rabi Narayan Kar and Amit Soni, “Mergers and Acquisition in India: A Strategic Impact Analyses for
the Corporate Enterprises in the Post Liberalisation Period”, retrieved from http://www.igida.
al.in/money/merger%20andAcquistion%20IN%20Indiapdf, accessed on 2 December 2012 at 1.00 pm
177
Gurminder Kaur, 2005, p. 4.
49
monopoly, consumer activities do not oppose them.178 They have even got a pat form
our highest judiciary as mentioned earlier. The Indian economy has undergone major
transformation and structural change following the economic reforms introduced by the
Government of India in 1991.179

In 1991, the restrictive provisions of the Monopolies and Restrictive Trade Practice Act
relating to licensing for expansion of enterprises, amalgamations and takeovers of
business enterprises, and acquisition of foreign technology and foreign investment were
removed. This was done as such restrictions hampered the expansion, diversification
and upgradation of technology required for international competitiveness, which had
become imperative with the opening up of the economy. The Foreign Exchange
Regulation Act (FERA) was substantially altered in early 1993 with the intention of
reversing the earlier policy of restricting foreign investment to the activity in which the
State took an achieve role in promoting.

All restrictions on FERA companies with respect to borrowing funds or raising deposits
in India as well as taking over or holding stakes in Indian companies were removed.
Indian companies and Indian nationals were allowed to start joint ventures abroad and
accept directorship in overseas companies which was earlier prohibited. This was
accompanied by various other reforms in the financial sector. New capital issues were
completely deregulated. Private mutual funds and Foreign Institutional Investors (FIIs)
were allowed to enter the capital market. The Foreign Exchange Management Act
(FEMA) was introduced in 2000 which allowed companies to invest 100 percent of the
proceeds of their American Depository Receipts/Global Depository Receipts issues for
acquisitions of foreign companies and direct investment in joint ventures (JVs), wholly-
owned subsidiaries (WOS) without any profitability condition. Indian parties investing
in JVs/WOS outside India were permitted to invest $100 million as against the earlier
limit of $50 million. The change in policy regime in 2005 allowed Indian firms to invest
in entities abroad up to 200 percent of their net worth without any probability exchange

178
Id., p. 5.
179
Pramod Mantravadi and A. Vidyadhar Reddy, “Relative Size in Mergers and Operating Performance:
Indian Experience”, Economic and Political Weekly, 29 September 2007, Vol. 42, No. 39, pp. 3936-
3942, p. 3936.
50
earning condition.180 At present, Indian companies are permitted to invest upto 400
percent of their net worth in joint ventures or wholly owned subsidiaries abroad under
the automatic route.181

In the liberalised economic and business environment, ‘size and competence’ have
become the focus of every business enterprise in India as companies realise the need to
grow and expand in businesses that they understand well. Indian corporates have
undertaken restructuring exercising to sell of non-core businesses and to create a
stronger presence in their core areas of business interest. Merger and acquisition have
emerged as one of the most effective methods of such corporates restructuring and have
therefore become an integral part of the long-term business strategy of corporates in
India. Three distinct trends can be seen in the mergers and acquisitions activity in India
after the reforms in 1991.182

In the first wave of M&As (i.e. 1990-95), the Indian corporate houses seem to have
been bracing up to face foreign competition.183 This was a period of intense investment
activity. A wave of consolidation swept the Indian industry as companies tried to
prepare for the potential aggressive competition in domestic and overseas market
through M&As (to achieve economics of scale and scope). In the second wave (i.e.
1995-2000) there was increased activity in consolidation of subsidiaries by
multinational companies operating in India, followed by the entry of several
multinational companies into Indian markets, through the acquisition route with
liberalised norms in place for foreign direct investments (FDI).184 Evidence shows that
almost 40 percent of the inflow of foreign direct investment into India during the second
half of 1990s came through cross-border M&As.185

180
Shyamala Gopinath, “Overseas Investments by Indian Companies-Evolution of Policy and Trend”,
RBI Bulletin, February 2007, Vol. LXI, No.2, pp. 230-239, p. 237.
181
H. Jayesh, “India’s Negotiated M&A Guide”, retrieved from http://www.ibanet.org/Document/
Default.aspx?Document llid=966A8448, accessed on 1 February 2014 at 6.25 pm.
182
Pramod Mantravadi and A. Vidyadhar Reddy, 2007, p. 3936.
183
P.L. Beena, “Trends and Perspectives on Corporate Mergers in Contemporary India”, Economic and
Political Weekly, 27 September 2008, pp. 48-56, p. 48.
184
P.L. Beena, “An Analysis of Mergers in Private Corporate Sector in India” Working Paper 301, Cent
re for Development Studies, Thiruvanathapuram, retrieved from http://www.cds.edu/ccup-content/
uploads/2012/10/wp301.pdf, accessed on 2 February 2014 at 9.10 pm.
185
P.L. Beena, 2008, p. 48.
51
It is argued that merger bids by multinationals accelerated in India since the mid-1990s
as a result of mismanaged financial sector reforms as well as higher interest rates
consequent on poor macro-economic management.186 Kumar (2000) argued that such
mergers have potential damaging consequences for capital formation, the balance of
payments, technology transfer and competition.187 The factors influencing foreign
acquisitions by Indian firms could be to gain market access for exports, horizontal or
vertical integration, capture of brand names, access to technology and global leadership
aspirations.188

The third wave of M&As in India evident since 2000 is that of Indian company
venturing abroad and making acquisitions in developed and other developing countries,
for gaining entry into international market. Indian company have been actively pursuing
overseas acquisition in recent years. The opening up of the Indian economy and
financial sector, huge cash reserves following some years of great profits and enhanced
competitiveness in the global market, have given greater confidence to big Indian
companies to venture abroad for market expansion. Surges in economic growth and
decreasing interest rate have made financing such deals, cheaper. Changes in
regulations made by the finance ministry in India pertaining to overseas investment by
Indian companies have also made it easier for the companies to acquire abroad. The last
few years have seen Indian corporates in several international acquisition deals in
developed and emerging markets.189 Example are US based soft drink major Coca-cola
bought Parle’s Thums up, Limca and Gold Spot Brands, Gillete taking over Indian
Shaving Products and Broke Bond merged with Hindustan Lever.190

Since the 1990s, there has been substantial growth of M&As in the Indian corporate
sector. The total number of amalgamations during the period 1975-79 were 156. That
figure remained at 156 during next quinquennium (1980-81 to 1984-85) and then fell to

186
Ibid.
187
Nagesh Kumar, “Mergers and Acquisitions by MNES: Patterns and Implications”, Economic and
Political Weekly, Vol. XXXV, No. 32, as quoted in P.L. Beena, 2008, p. 48.
188
For details, See, R. Nagaraj, “Indian Investment Abroad: What Explains the Boom?”, Economic and
Political Weekly, Vol. XLI, No. 46, pp. 4716-4718.
189
Pramod Mantravadi and A. Vidyadhar Reddy, 2007, p. 3936.
190
T.V. Lakshminarayan, “Corporate Marriages now made in India”, The Tribune, 4 April 2000, p. 10.
52
113 during the period 1985-86 to 1989-90.191 However, facilitated by changes in the
policy environment, the number of mergers rose sharply to 1034 during the period 1990
to 2000.192 Even if year wise data from the period 1990 to 1999 is seen, the number of
mergers has sharply increased from 44 in 1990 to 324 in 1995 to 422 in 2000.193

The number of M&As which were just 291 in 1990-95, rose to 743 in 1995-2000 and
1370 in 2000-06. Thus, it is evident that this trend is sharper since the latter half of the
1990s.194 Another visible trend is that mergers account for around one-third of total
M&A deals in India. It implies that takeovers or acquisitions are the dominant feature of
M&A activity in India, similar to the trend in most of the developed countries.195

Thus, it is clear that the structural adjustment programme and the new industrial regime
adopted by the Government of India allowed business houses to undertake without
restriction any programme of expansion either by entering into a new market or through
expansion in an existing market.196 Indian industries experienced shocks after the
initiation of liberalisation of the economy in 1991.197 Post-liberalisation Indian
industrial sector witnessed substantial rise in M&A activity in the industrial and
financial sectors of the economy. The giant Hindustan Lever Limited employed M&A
as an important growth strategy by merging with TOMCO. The Ajay Piramal group has
almost entirely been built up by M&As. The south based, Murugappa group built an
empire by employing M&A as a strategy. Some of the companies acquired by
Murugappa group includes Parry Agro Industries, Coromondal Fertilisers, Bharat
Pulversing Mills, Sterling Abrasives, Cut Fast Abrasives etc. Ranbaxy Laboratories
limited and Sun Pharmaceutical Industries have also grown through M&As. During the
191
“Registration and Liquidation of Joint Stock Company”, R and D Division, Department of Company
Affairs, Various Issues and “Report on the working and administration of the MRTP Act, 1969”,
Department of Company Affairs, Government of India, Various Issues, retrieved from
http://www.cds./edu/download-files/up3d.pdf, accessed on 16 March 2008 at 3.00 pm.
192
“Corporate Sector: Mergers & Acquisitions”, Monthly Review of Indian Economy, Economic
Intelligence Service, CMIE and Department of Company Affairs, R and S Division, New Delhi, 2001.
193
Sushil Khanna, “Financial Reforms and Industrial Sectors in India”, Economic and Political Weekly,
November 1999, p. 3233.
194
“Corporate Sector: Mergers & Acquisitions”, Monthly Review of the Indian Economy, Economic
Intelligence Service, CMIE and Department of Company Affairs, Research and Statistics Division,
New Delhi, Various Issues.
195
I.M. Pandey, 2007, pp. 673-674.
196
P.L. Beena, 2008, p. 49.
197
Gurminder Kaur, 2005, p. 29.
53
decade of nineties, there has been plethora of M&As happening in every sector of
Indian Industry.198 Not to forget the M&As in known and big industrial houses like
Reliance (the famous RIL-RPL merger and RNLR-Reliance Power merger), Tata group
and Birla Group. Thus following the liberalisation and deregulation of Indian economy
in 1991, organisations are passing through a phase of change as never witnessed before.
The new business environment has provided Indian organisations an opportunity to
become global organisations through M&As and expansion plans.199

1.6.4. Recent Emerging Scenario

The present era in M&As is driven by the desire of Indian Industries to go global and
with standing global competition. The Indian Corporate sector has realised that if
M&As are planned and executed properly can provide great opportunity of growth, cost
saving, technology up gradation and capturing market beyond the national boundaries.

The increased competition in the global market has prompted the Indian companies to
go for mergers and acquisitions as an important strategic choice. Among the different
Indian sectors that have resorted to mergers and acquisitions in recent times, telecom,
finance, FMCG, construction materials, automobile and steel industry are worth
mentioning. With the increasing member of Indian Companies opting for M&As, India
is now one of the leading nations in the world in terms of M&As.200 Acquisition of
foreign companies by the Indian businesses has been the latest trend in the Indian
corporate sector. Favourable government policies, buoyancy in economy, additional
liquidity in the corporate sector and the dynamic attitudes of the Indian entrepreneurs
are the key factors behind the changing trends of M&A in India.201 Some of the
prominent acquisitions by Indian companies in the recent past are as follows:

198
Rabi Narayan Kar and Amit Soni, “Mergers and Acquisition in India: A Strategic Impact Analyses for
the Corporate Enterprises in the Post Liberalisation Period”, retrieved from http://www.igida.
al.in/money/merger%20andAcquistion%20IN%20Indiapdf. accessed on 2 December 2012 at 1.00 pm
199
Rattan Raina, “India’s Global competitiveness through Mergers and Acquisitions: Trends and
Strategies”, retrieved from http://www.indiajournals.com/glogift2K6/glogift2K6-1-1/theme4/ article/
209. html, accessed on 7 December 2012 at 3.12 pm.
200
“Mergers and Acquisitions Across Indian Sectors”, retrieved from http://www.economywatch.com.
mergers-acquisitions/india.html, accessed on 21 September 2011 at 9.02 pm.
201
Ibid.
54
Outbound Deals

On January 30, 2007, Tata Steel purchased 100% stake in Corus at 608 pence
per share at $12.2 billion. The deal is the largest Indian takeover of a foreign
company. The combined entity will be world’s fifth largest producer of steel.
The acquisition of Corus is a redefining deal in the steel industry and will pave
the way for Tata’s steel growth over the next several decades.202

In February 2007, Aluminum and Copper major Hindalco Industries acquired

Canadian Company Novelis for $ 6 billion. The acquisition made Hindalco the
global leader in aluminum rolled products and one of the largest aluminum
producers in Asia.203

Tata Motors in March 2008 acquired luxury auto brands Jaguar and Land Rover
from Ford Motors for $ 2.3 billion.

The Oil and Natural Gas Corporation took control of Imperial Energy Plc for
$2.8 billion in 2009.

Dr. Reddy Lab acquired Betapharm through a deal worth $597 million.

Videocon acquired Daewoo Electronics Corporation for $729 million.

One of the India’s Largest IT companies HCL Technologies Ltd acquired the
British based Axon group Plc’s SAP consulting firm for $0.662 billion in an all
cash deal. The deal has catapulted HCL into the top 15 global players in the
Enterprise Application Services (EAS) business.204

In June 2010, Bharti Airtel acquired the African assets of Kuwaiti telecom
operator Zain for $10.7 billion. The deal made Bharti Airtel the fifth-largest
mobile operator of the world with operations across 18 countries.205

202
For details, see, Daksesh Parikh et al., “Corus Day Ahead”, Business India, 25 February 2007, pp.
50-58.
203
“India’s 11 largest M&A deals”, retrieved from http://www.business.rediff.com/slide-show/2009/ may
/29/slide-show-1-indian-11-largest-m-and-a-deals.htm, accessed on 2 November 2013 at 7.30 pm.
204
Ernst and Young, 2010, p. 8.
205
For details, see, Ernst and Young, 2010 p. 8; also see “Bharti Seeks Funds for Zain buyout”, The
Tribune, 28 May, 2010, p. 17, also see “Bharti Airtel Bets Big on Africa”, The Tribune, 1 July 2010,
p.16.
55
 In August 2010, Airtel announced its intention to acquire Telecom Seychelles to
further strengthen its African operations. It acquired 100% state in Telecom
Seychelles for $62 million.206

In June 2012, Piramal Healthcare acquired US-based Decision Resources Group

(DRG) for about Rs. 3400 crore to strengthen its position in the research and
consulting services space.207

Inbound Deals

In 2007, Vodafone acquired 66.98 percent stake in Hutichson-Essar for $11.08

billion.

Marking the largest-ever deal in the Indian pharma industry, Japanese drug firm
Daiichi Sankyo in June 2008 acquired the majority stake of more than 52.5
percent in Ranbaxy for over Rs. 15000 crore ($ 4.5 billion). The deal made the
combined company 15th biggest drug maker globally.208

Japanese Telecom giant NIT Docomo picked up a 26 percent stake in Tata

Teleservices for about $2.7 billion in November 2008. As a result of the
alliance, the partners expect to expand mobile communication operations in the
fast growing Indian mobile market, aiming to increase operating revenue and
achieve steady business growth.209

Abott Laboratories acquired healthcare solution business of Piramal Healthcare

Ltd. for $ 3.72 billion.

In June 2011, the UK’s BP bought 30 percent stake in Reliance Industries oil
and gas blocks for $ 7.2 billion. It was termed as historic and transformational as
it will combine BP’s world-class deep water exploration and development
capabilities with Reliance’s project management and operations expertise.210

206
“Now Airtel to Acquire Telecom Seychelles”, The Tribune, 12 August 2010, p.15.
207
“Piramal to buy US firm for 3400 crore”, The Tribune, 17 May, 2012, p. 15.
208
“India’s 11 largest M&A deals”, retrieved from http://business.rediff.com/slide-show/2009/may/
29/slide-show-1-indian-11-largest-m-and-a-deals.htm, accessed on 2 November 2013 at 7.30 pm;
also see, “Ranbaxy Sells Stake to Daiichi in Off-market Deal”, The Tribune, 21 October, 2008, p. 17.
209
Ernst and Young, 2010, p. 9.
210
For further details, see, “Reliance Industries, BP Sign $7.2 billion deals”, The Tribune, 22 February
2011, p. 15.
56
 It August, 2010, Cairn Energy agreed to sell its majority stake to Vedanta in a
deal that is valued at $9.6 million. The cabinet nod to deal on 30 June 2011 sent
a positive signal to foreign investors.211
In 2012, Diageo Plc agreed to pick up 53.4% stake in United Spirits in a multi-
structured deal for a total of Rs. 11,166.5 crores.212
On 24 April 2013, Abu-Dhabi based Etihaad Airlines announced its decision to
purchase 24% stake in Jet Airways for Rs. 2058 crores.213

M&A Deals between Indian Companies

HDFC Bank acquired Centurion Bank of Punjab for $ 2.4 billion in one of the
largest mergers in financial sector in India in February 2008.

Merger of Bank of Rajasthan with India’s largest private sector bank in an all
share deal valued at about Rs. 30.41 billion in May 2010 which gave ICICI
Bank sustainable competitive advantage over its customers in Indian banking.214

RNLR born out of demerger of Dhirubai Ambani’s Reliance in 2005 merged

with Reliance Power in a mega Rs. 50,000 crore deal in July 2010. The
combined entity had over 60 lakh shareholders-the largest for any entity in the
world.215

Mahindra and Mahindra acquired 55.2% stake in the Reva Electric Car
Company Ltd. of Bangalore for Rs. 45 crore. The buyout has made the
Mahindra group a strong global player in the electric vehicle space.216

Satyam which was on the brink of collapse after the fiasco created by
Ramalingam Raju in January 2009 was acquired by Tech Mahindra, a unit of

211
“Cabinet Nod to Cairn –Vedanta Deal”, The Tribune, 1 July, 2011, p. 17.
212
For further details, see, “Diageo Buys USL Shares Worth Rs. 472 crore”, The Tribune, 27 November
2013, p. 13.
213
For further details, see, “Jet-Etihaad Stake Sale being Examined: PMO”, The Tribune, 3 July 2013, p. 1;
also see, Vibha Sharma, “Jet-Etihaad Deal Cleared, but with Some Riders”, The Tribune, 30 July 2013,
p. 2.
214
For further details, see, K.A. Goyal and Vijay Joshi, “Merger and Acquisition in Banking Industry: A
Case Study of ICICI Bank Ltd”, International Journal of Research in Management, March 2012,
Vol. 2, Issue 2, pp. 30-39.
215
Nod for RNRL, R-Power Merger”, The Tribune, 5 July 2010, p.19.
216
“M&M Acquired 55% Stake in Reva”, The Tribune, 27 May 2010, p.17.
57
 Mahindra and Mahindra in April 2009, and renamed as Mahindra Satyam. Tech
Mahindra bought the remaining stake in Mahindra Satyam at about $ 1 billion in
2012 and became India’s fifth largest software exporter. This deal has fully
integrated the two companies.217

In a biggest ever merger in the Indian Pharmaceutical Industry, Sun

Pharmaceuticals acquired Ranbaxy from its Japanese parent Daiichi Sankyo in a
deal valued at $4 billion.

In the biggest acquisitions in the Indian e-commerce segment, Flipkart acquired

leading fashion e-tailor Myntra.com in deal estimated at about $300 million in
May 2014.218

As we have seen, year 2007 was a remarkable year for Indian M&A market with many
prominent deals like Tata-Corus, Hindalco-Novelis, Vodafone acquiring Hutchison
Essar etc. taking place. This vibrancy in M&A environment was due to positive
regulatory mechanism, globally accepted business processes and a robust and optimistic
investment climate.219

But in 2008-09, there was a slump in M&A activity. Euro zone crisis and a recession in
the world economy had an impact on Indian economy also. That phase was only
temporary and our M&A deals revived back. The M&A database captured showed that
substantial acquisition of shares deals which were 71,531.8 crore in 2008-09 rose to 598
deals of Rs. 1.4 lakh crore in 2009-10 and further to 608 deals of Rs. 1.9 lakh crore. The
average deal size rose from Rs. 234 crore in 2009-2010 to Rs. 319.7 crore in 2010-
2011.220 The number of deals rose to 1235 in 2011-12 but deal value was Rs. 1.76 lakh
crore only.221 This means lot of small deals taking place. The average deal size for

217
For further details see, “Tech Mahindra, Satyam to Merge, Swap Ratio set at 2:17”, The Tribune, 22
March 2012, p. 15, also see “Tech Mahindra, Satyam Merger Decision Today”, The Tribune, 21
March 2012, p. 15.
218
For further details, see, Deepa Kurup, “Flipkart Buys Out Myntra for $300 m”, The Hindu, 23 May
2014, p. 14.
219
Jayadeep Kaur, “Mergers and Acquisitions–Legal Framework and Compliances”, SEBI and
Corporate Laws, 10-16 January 2011, Vol. 105, pp. 20-24, p. 23.
220
“Corporate Sector: Mergers and Acquisitions”, Monthly Review of the Indian Economy, Economic
Intelligence Service, Centre for Monitoring Indian Economy, New Delhi, March, 2011, p. 62.
221
“Corporate Sector: Mergers and Acquisitions”, Monthly Review of the Indian Economy, Economic
Intelligence Service, Centre for Monitoring Indian Economy, New Delhi, March, 2012, p. 62.
58
financial year 2012 declined to US $ 86.6 million, a significant reduction when
compared to financial year 2011 which stood at US $ 143 million.222 The financial year
2012 has not been so encouraging at the global level, with the decline in number of
deals as well as a decline in the size of the larger deals. The highest amount paid for a
deal stood at just Rs. 5,747 crore in 2012-13 as compared to Rs. 22, 295 crores in the
preceding year. The number of mergers also declined significantly during 2012-13.
They fell by 37.2 percent from 282 in 2011-12 to 177 in 2012-13. This was the lowest
number of mergers to have taken place in the last 14 years.223 Thus financial year 2012-
13 was not so encouraging for the Indian economy with drop in volume and value of
M&A deals.

Table 1.1: Data on Mergers and Acquisitions (2008-2013).

Year Acquisitions Number of Number of

(Rs. crores) Acquisitions Mergers

2008-09 71,531.08 N.A. N.A.

2009-10 1, 39, 920.99 598 229

2010-11 1,94,400.61 608 213

2011-12 1,75,195.15 1220 282

2012-13 1,15,815.17 966 177

Source: “Corporate Sector: Mergers and Acquisitions”, Monthly Review of the Indian
Economy, Economic Intelligence Service, Centre for Monitoring Indian Economy,
Various Issues.

222
Ernst and Young, “Transactions 2012: Maturing M&A markets”, retrieved from http://www.ey.com/
publication/rwluassets/transaction_2012_Brochure_Final.pdf.list, accessed on 15 January 2013 at
12.42 pm.
223
“Corporate Sector: Mergers and Acquisitions”, Monthly Review of the Indian Economy, Economic
Intelligence Service, Centre for Monitoring Indian Economy, New Delhi, April 2013, p. 60.
59
 Fig. 1.1: Number of Mergers and Acquisitions Deals between 2008-2013.

1400 1220

1200
966
Number of Deals

1000

800 598 608

600

400 282
229 213 177
200 0 0
0
2008-09 2009-10 2010-11 2011-12 2012-13
Years

No. of Acquisitions No. of Mergers

Source: “Corporate Sector: Mergers and Acquisitions”, Monthly Review of the Indian
Economy, Economic Intelligence Service, Centre for Monitoring Indian Economy,
Various Issues.

If we see the Table 1, we can see that, value of M&A deals was highest in financial year
2006-07 and 2007-08. But soon recession in US and Euro zone crisis lead to decline in
M&A activity in 2008-09 and 2009-10. But in 2010-11 and 2011-12 Indian economy
recovered. But again 2012-13 saw a decline in M&A activity. Global economic
headwinds such as uncertainties pertaining to the Euro zone and the slow recovery of
the US economy has marred M&A activity in financial year 2012.224 This was
aggravated by bad news at home such as slowdown in reforms, rising interest rates, the
depreciating rupee slow GDP growth and last but not the least the uncertainty created
by retrospective tax amendments introduced as a result of Supreme Court’s judgement
in Vodafone case and introduction of GAAR.

224
Ernst and Young, “Transactions 2012: Maturing M&A markets”, retrieved from http://www.ey.com/
publication/rwluassets/transaction_2012_Brochure_Final.pdf.list, accessed on 15 January 2013 at
12.42 pm.
60
But the negative investors sentiment, lead to postponement of GAAR till 2016. As a
result, the M&A activity which declined in 2012 again surged up in 2013. The first half
2013 review by Thompson Reuters revealed that India’s overall merger and acquisition
activities surged by 12.13 percent compared to the first half of 2012. 225 The major deals
happening during this period were Appollo Tyres acquisition of US based Cooper Tire
and Rubber Co. for 14,500 crore, Unilever, British parent increasing stake in Indian arm
i.e. Hindustan Unilever by 14.78 percent to 51.55 percent for $ 3.573 billion226 and the
Jet-Etihaad deal etc. Moreover, as regards 2014, data from industry tracker merger
market showed an increase of 47% in the value of deals between January and June this
year as compared to first six months of the previous year.227 Thus, India Inc. is growing
up for a season of mergers and acquisitions, with major deals taking place both
domestically and abroad. This shows that though high inflation, currency devaluation,
corruption and governance related issues remain a concern, the long-term economic
fundamentals of the country are intact.

With the fiscal deficit, weak capital market, depreciating rupee level and Euro Crisis,
the current macro-economic environment is challenging both at national and global
level.228 There is a little bit decline in M&A activity in last few years but the growth
story of India continues on the back of domestic demand and consumption as seen in
2013 and first half of 2014. Thus, post-1991 was the period of de-regulation, de-control,
de-licensing, de-canalisation and de-bureaucratisation of industry and trade.

India is projected to register a growth rate of over 7% in the current fiscal, which
indicates that Indian companies are positive about their business prospects. Though high
inflation, global slowdown, currency devaluation, corruption and governance related

225
“India Inc. gearing up for a season of mergers and acquisitions”, retrieved from http://www.
projectstoday.com/Week-at-Glance/India-Inc-Gearing-up-for-a-season-of-mergers and acquisitions,
accessed on 12 December 2013 at 4.04 pm.
226
This deal, accounted for 40.1 percent of inbound M&A in terms of value. For further details, see,
“Indian mergers and acquisitions down 6.8 percent to $23.8 billion so far this year: Report,” retrieved
from http://profit.ndtv.com/news/corporates/article-indian-mergers-and-acquisition-down-6.8 percent
to 23.8 billion-so-far-this year-report-328112, accessed on 22 November 2013 at 2.02 pm.
227
For further details see Maulik Vyas, “Indian Law Firms Riding High on a New M&A Wave”, The
Economic Times, 17 July 2014, p. 1.
228
Raja Lahiri, “An Overview: M&A in India”, Grant Thornton (ed.), “New Dimensions in M&A
Regulatory Framework”, http://www.granthornton.in/assets/GrantThorntonIndiaLLP-Assocham-M&A.
pdf, accessed on 6 August 2012 at 4.00 pm.
61
issues remain a concern, the long-term economic fundamentals of the country are intact
which is a positive sign.

Amidst these structural changes, Indian M&A is clearly witnessing some key trends in
recent times. A clear trend that is emerging now is the strategic shift in the behavioural
pattern of Indian entrepreneurs, who are now more willing to sell a part or whole of
their stake to exit their business to foreign players.229 i.e. focus of deal activity shifting
from outbound to inbound. The reason for this trend reversal is the weak Indian rupee
which has made Indian businesses attractive. The premium or attractive valuations from
foreign players had made the Indian businesses look attractive. Attractive valuations
from foreign players, given the significant growth opportunities in India are prompting
Indian entrepreneurs to evaluate exits. Moreover, there is significant shift in attitude and
behaviour of Indian entrepreneurs who have the open mind to evaluate strategic buyers
to exit their age-old businesses and this trend is expected to continue. Few successful
exits in the recent past by the Indian promoters include Daiichi-Ranbaxy and Abott-
Piramal. British Petroleum’s equity stake in Reliance Industries is one of the largest
deal of 2011, which demonstrates the desire of Indian promoter group to bring in
foreign technology and capital to enhance business capabilities.230 The acquisition of
53.4 percent stake in United Spirits for Rs 11,166.5 crore by Daiego in a multi-
structured deal, is expected to provide relief from the heavy losses faced by the
Kingfisher Airlines. Another such prominent deal is Vedanta acquisition of Cairn India.
Another reason for this trend could also be the relatively stable Asian economy in
comparison with few others uncertain European economies.231

These were trends of M&A during various periods of Indian corporate history. To
conclude, we can say that Indian business environment has altered radically with the
changes in economic policy and introduction of new institutional mechanism post-
1990s. Major legislative changes and removal of restrictions has lead to a substantial
size in M&A activity in the industrial and financial sector of the economy. Companies

229
Ibid.
230
Ibid.
231
Srivdiya CG, “2011: Inbound M&A Bucks The Trend”, retrieved from http://thefirm.moneycontrol.
com/story_page.php?autono=635079, accessed on 21 December 2012 at 2.12 pm.
62
are being taken over, units are being hived off, joint ventures tantamount to acquisitions
are being made on.232

As India Inc becomes increasingly coveted as an M&A destination, it also becomes

more susceptible to vagaries and uncertainty of the global economic climate.233 Current
lines are clearly challenging (both from the economic and regulatory perspectives)
which could pose a challenge to M&A environment in India, however, the long term
outlook on M&A in India remains robust.

However, there is a silver running in this dark cloud of economic woes. The weak rupee
has made the Indian business attractive and is likely to further prompt an increase in
inbound acquisitions. Furthermore, due to dormant equity markets, several PE investors
are likely to take the M&A route to exit their investments. To add to this, some Indian
companies with strong balance sheets are expected to make outbound acquisitions, since
valuation in developed markets are relatively low due to the global economic
slowdown.234

In my views, merger waves will continue in India in the upcoming years and India’s
M&A environment would continue to grow stronger and bigger in years to come. As
Western economies continue to show signs of weaknesses, Indian corporate sector
should aim at seizing this time and opportunity to strengthen India’s market position,
while expanding its global footprint.

1.7. Significance of the Study

Dramatic events in mergers, takeovers, restructuring and corporate control fill the
newspaper headlines almost daily. Merger and takeover issues have become central
public and corporate policy issues. Restructuring through M&As represent a new
industrial force that will lead the major economies of the world that practice these arts

232
“Mergers and Amalgamations”, retrieved from http://www.cciindi.com, accessed on 22 December,
2012 at 3.10 pm.
233
FICCI, “Evolving Dynamics in India’s M&A Landscape”, retrieved from http://www.ficci.com/
events/21076/knowledge-paper-M&A-Final.pdf, accessed on 16 January 2013 at 11.00 am.
234
Ernst and Young, “Transactions 2012: Maturing M&A markets”, retrieved from http://www.ey.com/
publication/rwluassets/transaction_2012_Brochure_Final.pdf.list, accessed on 15 January 2013 at
12.42 pm.
63
to new heights of creativity and productivity. They have become a sort of necessity and
need of the modern financial and economic environment. In this competitive era of
technological change, Indian industrialists have realised that M&As are the best way to
compete with overseas companies.

In view of the significance of M&As in today’s highly competitive, liberalised and

globalised world, an attempt is being made to study M&As in the Indian scenario. The
study will benefit academic researchers and students of corporate law as it has made a
detailed analysis of all the legal concepts and laws on M&As in India.

It will serve the society by pinpointing the shortcomings in the laws on mergers and
acquisitions in India and suggesting suitable modifications. The study will prove to be
immense help to business executives who are considering a merger or acquisition
proposal by pinpointing problem areas which lead to failure of mergers such as non-
integration of human resources. Lastly, the study will also serve the legal community
especially the corporate lawyer by providing the detailed discussion on procedural
requirements, laws and judicial pronouncements of the courts from time to time.

1.8. Object and Purpose of the Study

Around the globe, a restructuring wave in the form of mergers, amalgamations,

takeovers and acquisitions is sweeping the corporate sector the world over. Mergers and
acquisitions have become universal practices in the corporate world covering different
sectors within a nation and across the globe for securing survival, growth, expansion
and globalisation of the enterprise and to achieve multitude of objectives mentioned
before. M&As are strategic decisions leading to maximisation of a company’s growth
by enhancing its production and marketing operations. Indian corporate sector is not left
behind and have realised and used M&As to play a major role in achieving competitive
edge for India in international market place. Therefore, the foremost object and purpose
is to study the historical trends, recent scenario and motives of M&As in the present
economic scenario in India.

Involvement of social interests in the economic activities implies application of law

with a view to regulate the activity to ensure safeguard of general public interest. But
the legal and regulatory provisions governing M&As are myriad and complex involving
64
high degree of experience and skill. Therefore, the primary and basic objective of the
study is to analyse the various legal enactments, regulations and rules framed there
under which regulate M&A activity in India. Various laws will be critically analysed to
bring forth the lacuna in them. The study also intends to make certain suggestions to
remove those lacunas so that M&As can be carried out more smoothly and conveniently
as they give dramatic boost to an economy. The study will make a humble attempt to
suggest requisite improvements in our newly implemented competition regime in India
to give an impetus to merger and acquisition activity in India.

A lot of research has been done abroad on various issues concerning mergers and
acquisitions. No doubt, few studies have been done in India but they have left many
vital issues concerning mergers untouched. For instances, the issue of due diligence and
audit of intellectual property assets in M&As vis-à-vis intellectual property laws in
India, evolution and trends of M&As in India during various periods including merger
waves, the concept of cross-border mergers in the light of fallout of Bharti-MTN deal,
the new takeover regime i.e. Takeover Code, 2011 and its ramification for M&A deals
and the last but not the least, the nascent competition regime and its impact on M&A
have not been much explored in India. The present study aims to fill these voids. The
study will also touch upon highly controversial issues such as Vodafone tax dispute and
GAAR.

Above all, the study also intends to explore an altogether untouched subject i.e. our
newly enacted Companies Act, 2013. As we all know, Companies Act is the primary
legislation regulating mergers and amalgamations in India, so this study will explore the
journey from provisions regulating mergers under Companies Act 1956 to Companies
Act 2013 highlighting appropriate judicial rulings which lead to some of those changes.
Last but not the least, the kernel objective of this effort is to make available between the
covers of one study the salient, though scattered literature on this subject. It is hoped
that this study will fill the vacuum efficiently.

1.9. Review of the Existing Literature

No one can complete one’s research without reviewing existing literature on the subject
because to study present and make analysis for the future, the study of the past is
65
cardinal as it provides guidance and exhibits points which need particular attention. It
also enables us to pinpoint the research gap on the subject so that we as a legal
researcher can fill that gap and our research can be fruitful for the future researchers.
Although there are number of books, articles, working papers, newspapers articles and
magazine articles on the subject but some of these are too important without which the
study would be incomplete which are discussed below.

Books

S. Ramanjum in his book Mergers et al,235 gives detailed exposition to provisions of

Companies Act, 1956 drawing parallels with English Companies Act from which many
provisions in the Indian Act have been derived. The author has given commentaries of
renowned authors on company law such as Charlesworth, Gower and Palmer. The
narration of Indian Companies Act is highlighted by extensive extracts of relevant
Indian precedents, which impart a more definitive contour to an important and a
somewhat imprecise piece of legislation. It explains the concept of reverse merger and
amalgamation under SICA through Board for Industrial and Financial Reconstruction.
The author delves into the amalgamation of banking and government companies. The
author also highlights the taxation aspects of amalgamation, hiving-off business,
demergers, reduction of capital and buy-back of shares. The valuation, accounting and
secretarial practice in relation to amalgamation is well highlighted. Last but not the
least, the author has done detailed case studies on Tata’s acquisition of Corus in the
form of financial structuring of Overseas Acquisition-Tata’s approach. It highlights the
complete story of Tata Group (acquisitions like Corus and Jaguar Land-Rover), and
gives us a glimpse into the strength of Tata Group in executing the acquisition and
running all the groups companies across several continents. The author has also covered
the biggest story in the annals of Indian corporate history-the revival and resurrection of
Satyam by its acquisition by Tech Mahindra.

Rachna Jawa in her book entitled Mergers, Acquisition and Corporate Restructuring
in India236 deals with the structural changes in Indian Industries post-liberalisation

235
S. Ramanjum, Mergers et al (Issues, Implications and Case Law in Corporate Restructuring),
LexisNexis Butterworths Wadhwa, Nagpur, 2012.
236
Rachna Jawa, Mergers, Acquisitions and Corporate Restructuring in India: Procedure and Case
Studies, New Century Publications, New Delhi, 2009.
66
period. The increase in number of M&A deals also accompanies the increase in value of
such deals. The author also concludes that M&A has also assumed added significance in
view of disinvestment policy of the Government of India. The author has highlighted in
brief the legal and regulatory framework for mergers and acquisitions in India as well as
in developed countries like United Kingdom, Europe and USA. More importantly, this
book contains ten case studies of restructuring through mergers and acquisitions that
have taken place in India during the last decade. The work based on extensive statistical
exercises, brings out the major issues that actually crop up in a restructuring exercise.
The book has also given a brief review of prominent national and international works
and research in the field of mergers and acquisitions.

R.K. Singh in his book Amalgamation and Merger of Companies and the WTO-An
Indian Perspective,237 attempts to make a comprehensive study of the issues arising out
of amalgamation and merger of companies in India in the WTO regime as well as in the
perspective of other ventures regulating international trade and commerce. With the
onset of reforms to liberalise the Indian economy in July 1991, a new chapter has been
started and after the formation of WTO which has a great impact on all the sectors of
the Indian economy, new challenges are emerging though new heights are also in sight.
However, the book while examining the impact of WTO has also examined a number of
other collateral issues like historical perspective, statutory framework for mergers and
amalgamation, the role of corporate governance in mergers and amalgamation. Lastly,
the role of courts and tribunals in mergers and amalgamation as well as social and
humanitarian aspects on protection of shareholder and employees during merger and
amalgamation is analysed.

The Institute of Company Secretaries of India in its Handbook on Mergers

Amalgamations and Takeovers Law and Practice,238 reiterates the fact of rise of
corporate restructuring activities in the light of liberalisation, globalisation and the
increasing competition. This handbook disseminates information on myriad of legal and

237
R.K. Singh, Amalgamation & Merger of Companies and the WTO, Eastern Law House, New Delhi,
2013.
238
The Institute of Company Secretaries of India, Handbook on Mergers Amalgamation and Takeovers,
Wolters Kluwer (India) Pvt. Ltd., New Delhi, 2010.
67
regulatory provisions, taxation, accounting, financial and judicial aspects of mergers,
takeovers as well as demergers. The book also includes practical tips, frequently asked
questions and specimen schemes, orders and model resolutions for the benefit of users.
The third edition of the book has also included a chapter on due diligence required in
merger and acquisition transaction.

Kamal Ghosh Ray in his book titled Mergers and Acquisitions: Strategy Valuation and
Integration,239 presents various conceptual and critical aspects of the subject in a
systematic way. The book provides a detailed account of the financial aspects, including
the valuation of company, business, strategic approaches to M&A, principles of
valuation, techniques of valuation. It has compared the business valuation standards of
North America with that of India. It has also dealt with the accounting for mergers and
acquisitions and importance of due diligence in mergers and acquisition. The author has
also highlighted the most critical aspects of M&As i.e. the post-merger integration. The
author has also made detailed case studies of ABB-Flakt merger, Grasim’s Acquisition
of L&T Cement Plants and the acquisition of Indo Rama Textiles Limited by Spentex
Industries Limited.

Prasad G. Godbole in his book Mergers, Acquisitions and Corporate Restructuring240

states that the the significance of mergers, acquisitions and corporate restructuring
cannot be over emphasised in a rapidly changing economic environment and
consequent pressure on companies to cope with the emerging challenges. The main
objective of the book is to enrich the students with all strategic, legal, accounting,
taxation, funding and valuation concepts and issues relating to M&As and corporate
restructuring in the Indian and global context. A number of numerical examples have
also been given to enable the reader and a commerce student to easily understand the
legal accounting and taxation concepts of mergers and acquisitions. The book is divided
into five sections. Section one contains the basic concept of corporate restructuring
followed by various forms of corporate restructuring, motives behind M&As, synergies

239
Kamal Ghosh Ray, Mergers and Acquisitions: Strategy Valuation and Integration, PHI Learning
Private Limited, New Delhi, 2010.
240
Prasad G. Godbole, Mergers, Acquisitions and Corporate Restructuring, Vikas Publishing House
Pvt. Ltd., Noida, 2009.
68
from an M&A activity and various tactics involved therein. Section two focuses on
some important laws governing mergers, acquisitions and corporate restructuring.
Section three contains the main accounting and taxation norms relating to M&As.
Section four explains the concept of funding of acquisitions, mobilisation of borrowed
funds and management buyouts. Section five has four real life case studies Tata-Corus,
ICICI-ICICI Bank, Birlas acquisition of L&T and demerger of tower business of
RCOM and RTL into RITL.

Seth Dua and Associates in their book Joint Ventures and Mergers and Acquisition in
India,241 state that foreign corporations have adopted both the organic and the inorganic
route to establish their business enterprises in India. The books deals with company law
issues in mergers and acquisitions, contractual issues, exchanges control issues, labour
and employment issues, and taxation issues in mergers and acquisitions. The book is not
intended to be a commentary on the provisions of Indian law as such, but instead acts as
a guide to an attorney as well as to a person unacquainted with the laws of India. A
foreign investor may also need to look at the dispute resolution mechanism, available in
India to resolve disputes, if any, between the joint venture partners. A chapter in the
book has been devoted to anti-trust, competition and consumer law issues in mergers.
Provisions of MRTP Act and Competition Act relevant to mergers and acquisition have
been analysed.

Ernst and Young in their book Master Guide to Mergers and Acquisitions in India:
Tax and Regulatory,242 states that to add to the success of a deal, efficient tax and
regulatory planning is essential and this book provides an outline for the both.
Alongside with that, the book provides an insight into the role and concerns of the
private equity investor in the Indian market today, as well as the key issues to be
considered by a company when contemplating a cross-border merger-inbound and
outbound- with an Indian company. The book also deals with a concept which the
researcher has not found elsewhere i.e. tax due diligence. The book outlines the
parameters and necessity of a comprehensive tax due diligence report when undertaking

241
Seth Dua and Associates, Joint Ventures and Mergers and Acquisitions in India, LexisNexis
Butterworths Wadhwa, Nagpur, 2011.
242
Ernst and Young, Master Guide to Mergers and Acquisitions in India: Tax and Regulatory, Wolter
Kluwer (India) Pvt. Ltd., Gurgaon, 2012.
69
any corporate transaction. Moreover, with the advent of Direct Tax Code, which will be
effective in the near future, will significantly affect the Indian regulatory regime. The
book provides an insight into anticipated changes by highlighting key provisions that
have been clarified/changed in the new code such as CFC rules etc, and their possible
impact going forward. The book provides a comprehensive outline of the key tax and
regulatory factors to be considered while undertaking corporate transaction in India
such as merger/amalgamation, buy back of shares, capital reduction, slump sales,
itemised sales etc.

J.C. Verma in his book, Corporate Mergers Amalgamation and Takeover, (Concept,
Practice and Procedure243 reiterates that around the globe, corporate mergers and
amalgamations as well as acquisitions and takeovers have become universal practices in
the corporate world covering different sectors within the nations and even across the
borders for securing survival, growth, expansion and globalisation of the enterprise and
achieving multitude of objectives. In this background, the importance of mergers,
amalgamations, restructuring, acquisitions and takeovers has increased. The author has
divided book into separate parts viz; introduction, corporate mergers and
amalgamations, acquisitions and takeovers and the case studies on the topic have been
organised under a separate section. Moreover, important judicial pronouncement on
corporate mergers as well as acquisitions have been highlighted in a separate section.
The fifth edition of the book which the researcher has gone through also deals with the
human aspects of mergers, demergers, splits, hiving-off business, valuation of shares
and exchange ratio, reverse mergers, funding for mergers and takeovers, post merger
reorganisation, employee’s stock option scheme, insider trading and buy back of
securities. The book has made an indepth study on all the above topics. But this book
came in 2008, in the past six years, a lot of changes have taken place in laws on mergers
and takeovers. New Companies Act, Takeover Code, new Combination Regulations etc.
have come up. The book, no doubt a comprehensive study lack all the above matters. It
does not deal with competition and taxation aspects of mergers and acquisitions.

243
J.C. Verma, Corporate Mergers Amalgamations and Takeovers (Concept, Practice and Procedure),
Bharat Law House, New Delhi, 2009.
70
Sridharan and Pandian in Guide to Takeovers and Mergers244 deal with law on
mergers and amalgamation with reference to corporate and tax laws and also focusing
on contemporary issues like the Takeover Code, demergers, accounting standards AS-
14 issued on the subject. The book begins with history of the law on mergers and
amalgamations. The law on mergers and takeovers has been explained along with
decision of various courts and tribunals. Various chapters of the book have been written
in the order in which the event unfolds in the case of mergers and amalgamations. The
book also delves with the powers of BIFR for revival of sick companies, important
provisions of income-tax act on mergers and amalgamation, sales or value added tax as
well as excise implications of mergers and amalgamations. A chapter of the book is
devoted to amalgamation of banking companies as well as producer companies each.

D.P. Mittal in his book Competition Law and Practice245 makes a section-wise analysis
of Competition Act as all the provisions of the Act have now been enforced. The
Competition Commission has been set up and fully functional. The author states that
encouraging competition rather than curbing monopolies should be the aim and object
of the law. But the MRTP Act focuses on the latter. Therefore it became obsolete in the
light of international economic developments and was replaced by Competition Act,
2002. Far reaching amendments made by Competition Act, 2007 have been
incorporated.

H.K. Saharay in his book Textbook on Competition Law246 studies the background of
competition law in different parts of the world including Europe, U.K., U.S.A.,
Australia and India. It has traced the development of competition law in India with the
help of the report of High Level Committee on Competition Policy and Law-the
Raghavan Committee. The book also contains section-wise commentary of Competition
Act 2002 alongwith the relevant case law. The author subscribes to the views of the
Hon’ble Court in Steel Authority of India’s case that the main objective of competition

244
N.R. Sridharan and P.H. Arvind Pandian, Guide to Takeovers and Mergers, LexisNexis Butterworths
Wadhwa, Nagpur, 2010.
245
D.P. Mittal, Competition Law & Practice, Taxmann Publications (P.) Ltd., New Delhi, 2011.
246
H.K. Saharay, Textbook on Competition Law, Universal Law Publishing Co. Pvt. Ltd., New Delhi,
2012.
71
law is to promote economic efficiency using competition as one of the means of
assisting the creation of market responsive to consumer preferences.

Vinod K. Singhania and Kapil Singhania in their book Direct Taxes Law and
Practice247 is a comprehensive book on the subject of direct taxes. It makes the reader
aware of the nature and scope of the main provisions of the direct taxes. The authors
also delves on how a statutory provision has been interpreted by different courts of law
on different occasions. The whole income-tax act has been explained along with
suitable illustrations. The book has been helpful to the researcher in properly
understanding the provisions of income-tax act impacting mergers, amalgamations and
acquisitions. A chapter of the book has been devoted to business restructuring through
amalgamation, demergers and slump sale and provisions of income-tax act impacting
such business restructuring.

M.A. Weinberg, M.V. Blank and A.L. Greystoke in their book Weinberg and Blank
on Takeovers and Mergers248 is considered as the most authentic book on the topic for
its lucid explanation of various concepts such as mergers, takeovers, takeover bid and
various category of mergers and takeovers. The concept of control of a company has
been given detailed exposition through its meaning, classification and advantages of
control to the controllers of the company and the law regarding abuse of the control
Weinberg and Blank in their book had identified four main classes of motives of
takeovers and mergers. The book also highlights the choice of form of mergers or
takeovers for a company planning to do so. The author has categorised the methods for
takeover into four categories- acquisition for cash, exchange of shares, acquisition of
the undertaking or shares of both companies by a new company and lastly acquisition of
minority held shares of a subsidiary by the parent. The rights and duties of directors,
their companies and other persons in regard to mergers and takeovers are also
discussed. Lastly, the book also highlights the defences available to the target company
against the take-over bid. But the book has made an authentic and comprehensive

247
Vinod K. Singhania and Kapil Singhania, Direct Taxes Law and Practice, Taxmann Publications (P.)
Ltd., New Delhi, 2009.
248
M.A. Weinberg et al., Weinberg and Blank on Takeovers and Mergers, Sweet and Maxwell, London,
1979.
72
analysis of issues relating to mergers and takeovers keeping in mind the law in United
Kingdom.

Nicholas A.H. Stacey in his book Mergers in Modern Business249 has carried out both
retrospect as well as prospect for mergers in UK. The book was written in 1966. The
author says that past few years of industrial reconstruction has brought with it numerous
mergers after a lengthy period of tranquility. Though many mergers were carried out in
1920s and 1930s, these were mainly defensive in character. The author categorises pre-
war mergers as defensive in intent, post-war mergers were aimed at superior asset
utilisation and more recent ones at concentration. But the merger of the future are likely
to have integration as their principal motive. The book traces primarily the growth and
trends of mergers in UK. But necessary references to position in USA and other
European countries are also found at appropriate places. The author also highlights the
structure of mergers and reasons for mergers. The benefits and advantages of post
merger integration are also discussed. He emphasises the need to encourage research in
this area, which could help industrialists and merchants to maximise on their
endeavours.

K.R. Sampath in his book Law and Procedure for Mergers/Joint Ventures
Amalgamations Takeovers and Corporate Restructure250 attempts to bring out the
provisions of the Indian law relating to the ‘birth’ of a company i.e. formation and
registration of a company, causes for its ‘illness’ i.e. deficiency or inefficiency in its
management, finance, labour, human resources, technology or market, ways and means
for its improved health i.e. diversification, restructure, amalgamation, mergers,
demergers, takeovers and management buyouts, growth i.e. non-organic growth by
acquisitions or organic i.e. from within. The author has discussed reconstruction of
companies through mergers, amalgamation, demergers, takeovers. The issues of
rehabilitation of sick industrial companies, valuation of shares, due diligence, corporate
governance, bank mergers, foreign investment in joint ventures etc in India are also
discussed. The author has quoted at the relevant places, the legal provisions as far as

249
Nicholas A.H. Stacey, Mergers in Modern Business, Hutchinson & Co. Ltd., London, 1966.
250
K.R. Sampath, Law and Procedure for Mergers/Joint Ventures, Amalgamation, Takeovers and
Corporate Restructuring, Snow White Publications, Mumbai, 2008.
73
possible. Certain related legislations, rules, forms, legal procedure and compliance
requirements are also referred to. Draft outlines of relevant schemes are also given at
appropriate places.

Anand G. Srinivasan in his book Law Relating to New Takeover Code 2011251
elaborately discusses the SEBI (Substantial Acquisitions of Shares and Takeovers)
Regulations, 2011 by making comparison with SEBI (Substantial Acquisition of Shares
and Takeover) Regulation 1997. The author also quotes decision of SEBI and SAT at
appropriate places. The author also gives the report of the Takeover Regulation
Advisory Committee (TRAC) at the end of his book. The author is of the view that
considering the growing level of M&A activity in India and the increasing
sophistication of takeover market, it had become necessary to review the 1997 Code. So
SEBI constituted the TRAC and based on the recommendations of TRAC, Takeover
Code 2011 was notified.

Rabi Narayan Kar in his book, Mergers and Acquisitions of Enterprises252 examines
the issues and trends of mergers and acquisitions of business enterprises in India in the
post-1991 period. For this purpose, it also draws upon the experience of selected
developed countries in this regard. It tries to identify the trends of mergers and
acquisitions for different sectors of the Indian industry and the reasons thereof. This
book also investigates empirically the impact of mergers and acquisitions on
performance of corporate entities. For this purpose, micro level analysis for the selected
companies has been carried out to investigate the impact of mergers and acquisition on
the basis of financial variables. This book also tries to empirically probe the impact of
mergers and acquisitions on share price behaviour of selected Indian companies. Lastly,
a detailed study of the merger and acquisition process of one selected company i.e.
Ranbaxy has been carried out to understand the process of integration and its success.
But this book, does not carry any legal aspects of mergers and acquisitions and is better
suited to the requirements of students of business economics.

251
Anand G. Srinivasan, Law Relating to New Takeover Code 2011, Taxmann Publications (P.) Ltd.,
New Delhi, 2011.
252
Rabi Narayan Kar, Mergers and Acquisitions of Enterprises, New Century Publications, New Delhi,
2006.
74
R. Santhanam in his book, A Guide to Amalgamations of Companies with Special
Reference to Tax Planning253 highlights and illustrates the various requirements of
company law, law relating to monopolies and restrictive trade practices and tax
implications of amalgamations of companies. This book also contain judicial
pronouncements of the courts. In addition to these, valuation and accounting aspects of
amalgamation has also been dealt with. But widespread economic reforms undertaken
since 1991, significantly changed the economic environment of the country and made
provisions of Monopolies and Restrictive Trade Practices Act inadequate and obsolete.
Considering the requirements of time, Competition Act 2002 was enacted. Provisions of
Company Law and Income Tax Act have also been changed. Accounting procedures
have also undergone changes with the introduction of AS-14 issued by Institute of the
Chartered Accountants of India. Therefore, this book could not take into account the
recent and upcoming developments in the field of mergers and acquisitions in India as
no updated edition has been published.

Gurminder Kaur in her book, Corporate Mergers and Acquisitions,254 makes an

attempt to empirically evaluate the post merger performance of the merged companies
using the value-added metrics, namely, Economic Value Added, Market Value Added
and Return on Net Wealth, to ascertain whether mergers have resulted in value addition
for shareholders or not. For this, the author had taken a sample of 223 companies which
merged during the period of 1990-2000. This study also tries to identify the motives of
corporate mergers in India as avowed in their merger schemes. This study also focuses
on measuring the performance of merged companies before and after the merger in
terms of their motives. A very brief discussion on legal and regulatory framework for
mergers and acquisitions in India has also been taken. A brief discussion on
Competition Act 2002 has also been taken, but important amendments were made to the
act in 2007 and no updated edition of the book has been brought.

253
R. Santhanam, A Guide to Amalgamation of Companies with Special Reference to Tax Planning,
First Edition, Sultan Chand and Sons, New Delhi, 1978.
254
Gurminder Kaur, Corporate Mergers and Acquisitions, Deep and Deep Publications Pvt. Ltd., New
Delhi, 2005.
75
Max M. Habeck, Fritz Kroger and Michael R. Tram in their book, After the
Merger,255 point out that value creation is the main motive of the companies involved in
mergers. They have pointed out the problem areas where the merging companies fail
miserably and mergers fail to create value. In order to handle these problem areas the
companies should set the stage for post-merger integration before the deal closes. This
book offers an especially powerful blueprint on how post-merger integration should be
done from the practical experiences of merging companies globally. They have
highlighted the seven strategies for successful post-merger integration which can also
be called ‘Seven Rules of Mergers Success’. Companies with mergers in mind-no
matter what their size-would do well to consider these principles before signing on the
dotted line.

J. Fred Weston, Kwang S. Chung and Susan E. Hoag in their book, Mergers,
Restructuring and Corporate Control,256 provide conceptual framework of mergers so
as to increase one’s understanding of events of mergers and corporate restructuring. The
authors deal in mergers and other forms of restructuring from the US perspective. They
try to analyse through empirical study the mode of payment in merger, reasonable
premium one may expect from a bidder and effect on share price if firm engages in
stock repurchase or makes a stock or debt issue. This book enables its reader to form an
opinion on public policy towards mergers and acquisitions that should be adopted in
US. It tries to provide answers to the question-whether US form of restructuring is good
for business, economy, investors, consumers and workers through case studies of
important mergers in US.

V.S. Kaveri in his book Financial Analysis of Company Mergers in India,257 made the
first pioneering attempt in India to measure the success of company mergers in the
context of revival of corporate sickness by making a careful and indepth financial
analysis. This study conducted an indepth analysis of nine specific cases of mergers that
took place during the period 1975-84. It attempted to measure the effectiveness of

255
Max M. Habeck et al., After the Merger, Prentice Hall, London, 2000.
256
J. Fred Weston et al., Mergers, Restructuring and Corporate Control, Prentice Hall, New Jersey,
1990.
257
V.S. Kaveri, Financial Analysis of Company Mergers in India, Himalaya Publishing House,
Bombay, 1986.
76
mergers by comparing actual performance of mergers vis-à-vis various expectations laid
down in respect of mergers.

Enrique R. Arzac in his book, Valuation for Mergers, Buyouts and Restructuring,258
presents a comprehensive approach to corporate valuation. It treats in detail the
valuation of mergers, acquisitions and leveraged buyouts, the assessment of asset
restructuring options and recapitalisation plans. It contains valuation procedures,
examples for the different types of transactions and contractual arrangements commonly
encountered in practice. It also discusses the theoretical underpinnings and the research
evidence that justifies the recommended procedures. But this book takes into account
the tax laws, other legal practices and accountancy methods prevalent in the US. Indian
perspective is lacking.

Articles

Amit Ghosh in his article “The Mechanics of Mergers and Acquisitions”259 agrees that
acquisitions, mergers and amalgamations have become strategic devices in the hands of
more and more firms not only to stay in competition but also to extend their dominance.
This article takes a passing view of the factors contributing to mergers and acquisitions
before briefly outlining the requirements under the prevailing company law, tax laws
and accounting standard especially focusing on amalgamations. As the discussion on
the subject would not be complete without touching the issue of financing of mergers
and the commonly used methods of determining the share exchange ratio. The author
has also briefly touched the human resource perspectives in mergers and acquisitions.

Shubham Khare and Niharika Maske in their article “An Analysis of Mergers,
Amalgamations and Acquisition under the Competition Act, 2002”260 touches on a very
important issue of mergers, amalgamations and acquisitions under the Competition Act,
2002. The author is of the view that combinations whether in the form of merger/

258
Enquire R. Arzac, Valuation for Mergers, Buyouts and Restructuring, John Wiley and Sons,
Singapore, 2005.
259
Amit Ghosh, “The Mechanics of Mergers and Acquisitions”, Chartered Secretary, April 2007, pp.
436-442.
260
Shubham Khare and Niharika Maske, “An Analysis of Mergers, Amalgamations and Acquisitions
under the Competition Act, 2002”, SEBI and Corporate Laws, 8-14 February 2010, Vol. 97, pp. 58-
75.
77
amalgamation or acquisition are very important for a developing economy like India as
they provide a number of advantages from financial growth of the corporations to
market extension to diversification of business, to improve profitability and to achieve
economics of scale. The article elaborates on the purpose of Competition Act. It also
makes an effort to analyse the provisions of Competition Act, 2002 that govern the
regulation of combinations (mergers, acquisitions and amalgamation of enterprises) and
the potential conflict that would result by the proposed notification of the substantive
provisions of the Act with respect to mergers, acquisition and amalgamations, with
other Indian laws and regulations especially the Companies Act 1956 and the Securities
and Exchanges Board of India (Substantial Acquisition of Shares and Takeovers)
Regulation 1997.

P.L. Beena in his article “Trends and Perspectives on Corporate Mergers in

Contemporary India”261 says that the corporate sector in India has witnessed a
substantial growth of mergers and acquisitions since the 1990s. The new economic
environment has facilitated M&As since the 1990s. The author highlights the policy
reforms of 1990s and their impact on M&As from a period ranging from 1990-2006.
The research paper concludes that a large number of mergers were between firms
belonging to the same business groups and product lines with a view to increase their
respective controlling blocks and market power. The average performance of acquiring
firms based on all indicators during 1990-2005 was relatively better than that of a
manufacturing sector as a whole. The author in his study does not find significant
evidence of improvement in their performance in terms of various parameters during
post-merger phase as compared to the pre-merger period. The study argues that it is not
efficiency-related factors that influenced M&A activities in the Indian corporate sector.
It is rather the growth of the firm in terms of their asset size, market share and the
strengthening of the controlling bloc. The author highlights the need of an appropriate
competition policy to address the possible anti-trust implications of overseas mergers
for India as well as to deal with M&As among Indian enterprises.

261
P.L. Beena, “Trends and Perspectives on Corporate Mergers in Contemporary India”, Economic and
Political Weekly, 27 September 2008, pp. 48-56.
78
Reeti Sonchhatra in her article “Regulation of Mergers under Indian Competition
Law”262 has analysed in brief the various legislations regulating mergers in India such
as MRTP Act, 1969, Companies Act, 1956 and SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations 1997. The author also touches upon the laws with respect
to merger regulation in US, EU and UK. But the major focus of her study is the merger
regulation under Indian Competition Act, 2002. The author emphasises on the need to
have a single window system for regulation of mergers for all the countries. There
should be single competition law for all countries.

Darshan Kumar in his article “Amalgamation of Companies”263 has elaborately

discussed the meaning of amalgamation by quoting various texts and judicial
pronouncements of English and Indian courts. The Part one delves on meaning of
amalgamation, whereas Part two explains the taxation implications of amalgamations.
In views of the author, amalgamation has far reaching effects on the assessment of both
the amalgamating and the amalgamated companies. Amalgamation benefits not merely
the shareholders but the industry in general, consumers and the exchequer. Therefore, a
consistent and practical approach on the subject should be adopted to encourage it.

Karan Gupta in his article “Income Tax Aspects of M&As”264 writes that mergers and
acquisitions have been the principal tools of corporate restructuring for a very long
time. Fulfilling the requirements of company law alone is not sufficient for claiming
various tax benefits and exemptions which are specifically provided to amalgamated
companies. The fulfillment of conditions mentioned under section 2(1B) of Income Tax
Act 1961 will enable the amalgamated company to avail the benefits stipulated under
the Income Tax Act. According to the author, available tax benefits may lead to more
and more consolidation activity which may lead to the revival of the economic health of
the country. The tax benefits of the mergers would gain in importance as the economy
opens ups and on a domestic front facilitate the functioning of many defunct companies.

262
Reeti Sonchhatra, “Regulation of Mergers under Indian Competition Law”, Madras Law Journal,
2009, Vol. 5, pp. 13-19.
263
Darshan Kumar, “Amalgamation of Companies”, Taxation, April 1976, pp. 1-11.
264
Karan Gupta, “Income Tax Aspects of M&A”, Taxation Law Reports, July 2006 (Journal Section),
Vol. 48, No. VII, pp. 753-766.
79
K.R. Chandratre in his article “Legal, Regulatory and Procedural Aspects of
Amalgamations”265 explains the meaning of amalgamation with the help of various
judicial pronouncements. The amalgamation of companies involves compliance with a
number of statutory requirements involving elaborate and cumbersome procedures. The
procedure for complying with the multifarious requirements are enumerated in step by
step easy to understand manner in this article. The procedure for amalgamation under
Company (Court) Rules 1959 is discussed here under. In addition to this, the author also
deals with contentions issues involved in mergers such as share exchange ratio,
appointed date and effective date and amalgamation through BIFR under SICA.

Vikas Varma in his article “Company Law Issues in Mergers”266 seeks to raise certain
legal issues involved in the whole process of mergers/amalgamation in India. The
mergers and amalgamations in India are effected under the provisions of the sections
390 to 396A of the Companies Act, 1956. The author highlights the companies that are
eligible for merger in India, the position of foreign companies and unregistered
companies, the need of approval to a scheme of amalgamation form the shareholders,
creditors and financial institutions. The authors also emphasises in brief the duties of
court in sanctioning a scheme of amalgamation and effect of the sanctioning of the
scheme. The author also highlights through various judicial pronouncements, the
persons entitled to raise objection to scheme of amalgamation. Various provisions of
company law as well as certain judicial pronouncement has been highlighted at various
places in the article. The authors says that court has not only the power to sanction the
scheme but also to supervise it and make necessary modifications to it under section
392 of the Companies Act.

T.V. Ganesan in the article “Impact of Various Legislations and Regulatory Measures
on Mergers and Acquisitions”267 writes that Indian legal system consists of various
legislature and regulations, some of which have a great bearing on M&A. The author

265
K.R. Chandratre, “Legal Regulatory and Procedural Aspects of Amalgamations”, Chartered
Secretary, October 1997, pp. 1133-1138 and 1141.
266
Vikas Verma, “Company Law Issues in Mergers”, Chartered Secretary, March 2006, pp. 270-278.
267
T.V. Ganesan, “Impact of Various Legislations and Regulatory Measures on Mergers and
Acquisitions”, SEBI and Corporate Laws, 9-15 May 2011, Vol. 107, pp. 37-48.
80
has discussed the provisions of the Companies Act 1956, SEBI Takeover Code 1997,
Takeover Code 2011, Competition Act 2002 and its impact on M&A, Impact of Direct
Taxes Code and Companies Bill 2009 on M&A Transactions, the impact of FDI
policies on M&As has also been looked into. Any acquisition or merger cannot be
accomplished unless all the procedural requirements passed by the laws of the land are
fulfilled. The author has made an attempt to state the impact of various legislations and
regulatory measures on M&As.

Pramod Mantravadi and A. Vidyadhar Reddy in their article “Relative Size in

Mergers and Operating Performance: Indian Experience”268 are of the view that in
today’s globalised economy, mergers and acquisitions are being increasingly used the
world over as a strategy for achieving a larger size and asset base, faster growth in
market share and for becoming more competitive through economics of scale. One of
the important factors that could affect the outcome of a merger is the relative size of the
acquiring and the acquired companies. This paper studies the impact of the mergers on
the operating performance of acquiring companies by examining some pre-and post
merger financial ratios with a sample of firms chosen from all mergers involving public
limited and traded companies in India between 1991 and 2003. The result suggest that
relative size does make some difference to the post-merger operating performance of
acquiring firms, when the acquiring and acquired firms are of different relative sizes as
measured by market value of equity.

Rajesh Relan in his article “Revamp of the Takeover Code in the Offing”269 has
analysed the amendments suggested by Takeover Regulations Advisory Committee
(TRAC) in its 139-page report. The article was written in 2010 when Takeover Code
2011 had not come into existence. According to the author, the TRAC in its report to
the SEBI has proposed sweeping changes which would mark a paradigm shift in the
takeover of listed companies. This write up makes a journey through the proposed
amendments. The author opines that TRAC has strived to strike a balance between the

268
Pramod Mantravadi and A. Vidyadhar Reddy, “Relative Size in Mergers and Operating Performance:
Indian Experience”, Economic and Political Weekly, 29 September 2007, Vol. 42, No. 39, pp. 3936-
3941.
269
Rajesh Relan, “Revamp of the Takeover Code in the Offing”, SEBI and Corporate Laws, 20-26
December, 2010, Vol. 104, pp. 75-82.
81
interest of the promoters, the acquirers and the minority shareholders. He makes an
appraisal of proposed changes which according to him are laudable and would go a long
way in the protection of the interests of the public shareholders.

T.V. Ganesan in his write-up on “SEBI’s New Takeover Code, 2011 and its Impact on
Corporate India”270 studies and highlights the important features and aspects of the new
Takeover Code and their impact on corporate India. The impact of changes in Takeover
Code on acquirers, promoters and investors is highlighted. Offers for which public
announcement has been made under the repealed regulations shall continue and would
be completed under the repealed regulations. According to the author, the new Takeover
Code is going to change the landscape of corporate India, would facilitate competition
and encourage investment.

Ajay Halder in his article “Merger and Amalgamation: Judicial Inroads”271 views that
as a matter of fact judiciary plays an important role in the sanction of merger and
amalgamation. Therefore, the main purpose of the present paper would be to make an
enquiry into the role of judiciary in the process of merger and amalgamation. The
author has highlighted the judicial angle through four aspects. The first aspect deals
with courts role in sanction of merger and amalgamation, second aspect deals with part
played by the court in determining commercial merit of the scheme, third aspect
concerns with effective date of amalgamation and the final issue deals with court’s
power to dispense off with special procedure which may be required for amalgamation.

Tahir Ashraf Siddique in his article “Pertinent Intellectual Property Issues in Mergers
and Acquisitions: An Analysis”272 attempts to analyse the various issues relating to
intellectual property transfer in a merger and acquisition deal. The author emphasises on
the importance of intellectual property valuation in mergers and acquisitions. He
highlights the intellectual property valuation issues in mergers and acquisitions. The
article recognises certain key areas that firms need to focus in their Intellectual Property

270
T.V. Ganesan, “SEBI’s New Takeover Code, 2011 and its Impact on Corporate India”, SEBI and
Corporate Laws, 16-22 January 2012, Vol. 111, pp. 33-40.
271
Ajay Halder, “Merger and Amalgamation: Judicial Inroads”, Central India Law Quarterly, July-Sept.
2003, Vol. 16, pp. 307-315.
272
Tahir Ashraf Siddiqui, “Pertinent Intellectual Property Issues in Mergers and Acquisitions: An
Analysis”, SEBI and Corporate Laws, 2-8 May 2011, Vol. 107, pp. 9-21.
82
Due Diligence. It also endeavours to examine the post-merger issues arising on account
of transfer of intellectual property assets in mergers and acquisitions. Finally, the article
identifies certain case laws that has developed in United States in this area and lessons
for Indian transaction lawyers for cases that may come up in future.

C.S. Balasubramaniam in his article “An Appraisal of SEBI Takeover Code, 2011”273
has examined the concept of takeover, its objectives and modes. According to the
author, the SEBI introduced a formal Takeover Code in 1997 which helped set basic
rules for mergers and acquisitions in the nascent market scenario for such transactions.
But the rules left scope for interpretation leading to many disputes. That’s why SEBI
did a further review of the Takeover Code in 2002. The new Takeover Code, 2011
based on the recommendation of the Takeover Regulations Advisory Committee
(TRAC) headed by Shri Achutan, has made a paradigm shift towards global best
practices as is evident from a number of changes made. In this article, it has been
attempted to have an appraisal of the main revisions in the new Takeover Code, analyse
them and bring out the emerging issues for further discussions.

Anni Singh and Himani Sharma in their article “Cross-Border Mergers and
Acquisitions: Indian Companies Aiming to be World Leaders”274 states that realising
the economics of scale to be gained as well as privatisation, globalisation and
deregulation acting as the necessary catalysts, cross-border M&As have increased in
frequency. The authors explained the modes of inbound investments i.e. a foreign
company wanting to start operations in India as well as Indian Companies while making
outbound investment. The authors emphasise that Indian companies have a long way to
go. An Indian Company is not permitted to merge with a foreign entity, this prohibition
should be removed in order for companies to be able to explore all possible
restructuring options. The recommendations of J.J. Irani Committee to remove the long
drawn procedures for sanction of mergers should be followed as it can go a long way in
eliminating the obstructions to mergers in India.

273
C.S. Balasubramaniam, “An Appraisal of SEBI Takeover Code, 2011”, SEBI and Corporate Laws,
19-25 December 2011, Vol. 110, pp. 95-105.
274
Anni Singh and Himani Sharma, “Cross-Border Mergers and Acquisitions: Indian Companies
Aiming to be World Leaders”, Company Law Journal, 2009, Vol. 5, pp. J1-J7.
83
Sayantan Gupta in his article “Cross-border Mergers and Acquisitions in India”275
gives an overview of the cross-border mergers and acquisitions in India and the
applicable Indian laws such as Companies Act, 1956, Competition Act, 2002, the tax
laws, the Foreign Exchange Management Laws and the Securities Laws. He discusses at
length overseas direct investments which have been playing a part in the cross-border
deals. He finally examines the various transactional issues to which thought be given by
any company proposing to have a cross-border merger with a foreign company or
acquire its assets for finalising an acquisition. He also gives a gist of reforms suggested
by J.J. Irani Committee on laws on mergers in India. At last, he says that mergers and
acquisitions come in various forms and investor needs to understand what best suits
their needs.

Renuka Medury and Rinie Nag in their article “Cross-Border Mergers: Implications
under the Competition Act, 2002”276 have attempted to delineate the contours of the
application of the Indian Competition Act to cross-border mergers. The authors have
first analysed the provisions relating to mergers under the existing Act and the transition
from the earlier Monopolies and Restrictive Trade Practices Act, in terms of paradigm
shift. In second part, they have made an analysis of the definitional aspect of cross-
border mergers. In the third part, they have examined the scope of extra-territorial
application to competition laws in today’s globalised society, with reference to both
Indian and foreign laws.

A. Jayagovind in his article “Look at vs. Look Through: Legal Implications of

Vodafone Judgement”277 analyse in detail the judgement of the Hon’ble Supreme Court
in Vodafone’s Case. The case has generated intense public debate mainly because of
fiscal implications. According to the author, the case provides us a broad-picture of
modern corporate strategies and the legal responses thereto. This case was appeal from
the judgement of Bombay High Court in Vodafone International Holdings B.V. v.

275
Sayantan Gupta, “Cross-border Mergers and Acquisitions in India”, Corporate Law Advisor, 2008,
Vol. 86, pp. 66-78.
276
Renuka Medury and Rinie Nag, “Cross-border Mergers: Implications under the Competition Act,
2002”, SEBI and Corporate Laws, 2-8 August 2010, Vol. 101, pp. 71-76.
277
A. Jayagovind, “Look At vs. Look Through: Legal Implications of Vodafone Judgement”, The
Indian Journal of International Law, 2012, Vol. 52, pp. 72-79.
84
Union of India. Look through and look at represent two distinct approaches adopted by
our courts while analysing the issues arising out of these corporate strategies. From this
point of view, these judgements could be a good case study of the interface between law
and business strategies. The Bombay High Court followed look-through approach
whereas the Supreme Court adopted look-at approach. According to the author, look-at
and look-through approaches may appear as distinct from each other when literal
interpretation is narrowly understood i.e. when a text or transaction is treated in
isolation from the overall context but merge with each other when the text or transaction
is interpreted in the context understood in the broad sense of the term.

Bhagwan Jagwani in his article “Rising Trend of Cross-Border Mergers and

Acquisitions in Global Corporate Restructuring”278 focuses on the prominence of cross-
border mergers and acquisitions as a form of global corporate restructuring. The article
highlights the rising trend of cross-border M&A activity, its preference by companies
across the globe and in India. The article also shows the rising trend of contribution of
cross-border M&A in the total FDI inflows in our country. It also focuses on the impact
of cross-border M&A on firm’s performance and future prospects of cross-border
M&As as a corporate restructuring strategy.

Sachin Goyal in his article “Merger Control Regime in India”279 has discussed the
provisions of Competition Act, 2002 dealing with mergers and acquisitions alongwith
the Combination Regulations 2011. According to the author, with enforcement of
provisions related to mergers and acquisitions as provided in Competition Act, 2002,
Indian economy has entered into a new era of merger control regime in line with the rest
of the world. While this regime is decades old for EU and US, it is pretty new for Indian
corporates and economy as a whole. At the heart of the regime is the fundamental
principle that M&A deals which are likely to adversely affect competition in the market
in India will not be permitted to be consummated.

278
Bhagwan Jagwani, “Rising Trend of Cross-border Mergers and Acquisitions in Global Corporate
Restructuring”, Chartered Secretary, October 2011, pp. 1373-1377.
279
Sachin Goyal, “Merger Control Regime in India”, The Chartered Accountant, June 2012, pp. 1876-
1881.
85
Divi Jain in the her article “Impact of Mergers an Employees of the Company”280
highlight the fact that although the merging entities give a great deal of importance to
financial matters and the outcomes, human resource issues are the most neglected ones.
The studies show that most of the mergers fail to bring out the desired outcomes due to
people related issues. The author highlights that the impact on the employees range
from anger to depression. The usual impact is decrease in the morale, motivation and
productivity leading to merger failure. The M&A leads to stress on the employee, which
is caused by the differences in human resource practices, uncertainty in the
environment, cultural differences and differences in organisational structure and
changes in the managerial styles. The authors also offers solution to the above problem.
The author also make few case studies of successful human resource management in
M&A.

V. Mariappan in his article “Mergers and Acquisitions: The Human Issues and
Strategies”281 attempts to study the human resource responses to mergers and
acquisitions. The article has touched upon some of the important human issues in
mergers and acquisitions and thrown some light on managing the human resource
responses. According to the author, at the root of the failure of many mergers and
acquisitions is the fact that managements have failed to address the broader human
relations issues during the critical period leading up to or following merger or an
acquisition. But these human issues could be handled smoothly with the help of well
thought out and planned strategies.

Amitabh Robin Singh in his article “A Substantial Step Forward: Mergers and
Amalgamations in the Companies Act, 2013”282 has discussed some of the new
concepts introduced in this legislation. In this article, the author will focus on the major
ramifications of the companies Act 2013 on mergers and amalgamations in India. The
author concludes the Companies Act, 2013 is progressive on many fronts such as from

280
Divi Jain, “Impact of Merger on Employees of the Company”, The Madras Law Journal, 2008, Vol.
8, pp. 116-123.
281
V. Mariappan, “Mergers and Acquisitions: The Human Issues and Strategies”, The Indian Journal of
Industrial Relations, July 2003, Vol. 39, No. 1, pp. 84-94.
282
Amitabh Robin Singh, “A Substantial Step Forward: Mergers and Amalgamations in the Companies
Act, 2013”, SEBI and Corporate Laws, 15-30 November 2013, Vol. 122, pp. 79-83.
86
permitting to allow Indian Companies to merge into foreign companies and settling the
law on mergers between subsidiaries and holding companies.

Amit Kumar and Arvind Giriraj in their article “Mergers and Acquisition
Transactions: Examining in Role and Relevance of Intellectual Property” 283 study the
increasing importance of intangible assets in the context of mergers and acquisitions.
The author explains the techniques of valuation of intellectual property in M&A. He
also highlights the procedure of transfer of intellectual property in the name of the new
owner and technicalities involved in the transfer. All business whether large or small
can add significant value and revenue by exploitating the full potential of their valuable
intangible assets.

T.K.A. Padmanabhan in his article “Incidence of Stamp Duty on Amalgamation”284

explains the stamp duty implications with regard to amalgamation. According to author,
amalgamation under the Companies Act 1956 has all the trappings of a sale and the
amalgamation order of the court is an instrument which requires to be stamped under
the Indian Stamp Act, 1899. The author quotes the judgement of the Supreme Court in
Hindustan Lever’s case clearly settling the law as to the nature of the order sanctioning
an amalgamation. The author says that it is high time that the Indian stamp Act is
amended to make this legal issue more clear so that unnecessary litigation is avoided.

Bijesh Thakker and Gautam Bhatt in their article “Key Issues in a Cross-Border
Mergers and Acquisitions Transaction”285 have emphasized that cross-border deals are
becoming a regular feature of the Indian mergers and acquisitions landscape. The article
highlights in brief the key regulatory and legal issues to be considered in a cross-border
mergers and acquisitions deal in India by a foreign company.

T.V. Lakshimnarayan in his article “Corporate Marriages Now Made in India”286 has
highlighted the high tide of mergers and acquisitions in India after the liberalisation

283
Amit Kumar and Arvind Giriraj, “Mergers and Acquisition Transactions: Examining the Role and
Relevance of Intellectual Property”, Company Law Journal, 2010, Vol. 1, pp. 81-85.
284
T.K.A. Padmanabhan, “Incidence of Stamp Duty on Amalgamation”, Chartered Secretary, April
2007, pp. 460-463.
285
Bijesh Thakkar and Gautam Bhatt, “Key Issues in a Cross-border Mergers and Acquisitions
Transaction”, Manupatra Newsline, Vol. 1, Issue 7, December 2006, pp. 5-10.
286
T.V. Lakshminarayan, “Corporate Marriages Now Made in India”, The Tribune, 9 April 2000, p. 10.
87
policies of nineties by giving illustrations of mega deals that have taken place between
Indian companies and their foreign counterparts. He states that how Indian companies
are being encouraged to go global by Indian government by regular liberalisation of its
policies. As many multinationals entered India, Indian companies are also encouraged
by Indian government to play the same game abroad and become Indian multinationals
in the process.

David G. Fubini, Colin Price and Maurizio Zollo in their article “The Elusive Art of
Postmerger Leadership”287 are of the view that integrating two companies following a
takeover or merger has become a highly sophisticated exercise in recent years. They
state that while many combinations extract short-term financial synergies efficiently,
they may ultimately fall short of creating a truly healthy new company with strong
brands and customer relationship, motivated employees and a thirst for innovation.
They also suggest the means for CEO and other senior managers to attain the elusive
goal. They have to focus on five issues: move quickly to mould the top team,
communicate the corporate story, establish a performance culture, championing the
interests of key external stakeholders and balancing speed with time to reflect on and
absorb integration specific learning.

1.10. Research Gap

A lot of research has been done abroad on various issues concerning mergers and
acquisitions. A few studies which have been done in India have left many vital issues
concerning mergers untouched. This study aims to full that vacuum efficiently. For
instance, the researcher could not find any concrete research on the issue of due
diligence of intellectual property assets in mergers and acquisitions vis-à-vis intellectual
property laws in India. The Competition Act is in its nascent stage and its impact on
M&As has not been explored much in India. Moreover, the impact of new combination
regulations on M&As has not been studied. The researcher could not find much
literature on trends of mergers and acquisitions during various periods of history and the
mergers waves in India. Except for a few brief studies here and there, the concept of

287
David G. Fubini et al., “The Elusive Art of Post Merger Leadership”, Indian Management, January
2007, Vol. 46, Issue 1, pp. 48-53.
88
cross-border mergers with its various implications has not been explored to depth in
India. Last but not the least, the researcher could not find any literature on the newly
enacted Companies Act 2013 and its impact on mergers and amalgamations. The study
will also highlight the lacunas and areas of concern in all the laws on M&As as updated
till date. This exercise has not been done before also and that too in such a
comprehensive manner and under one roof. Therefore, this study aims to fill these voids.

1.11. Data Base and Methodology

The present study is mainly doctrinal. Doctrinal research has been done by researcher
using descriptive, analytical and critical methods of research. Sources of analytical
study are books of both national as well as international authors, national and
international journals, articles, newspaper articles, newspaper reports, business
magazines, projects reports, unpublished Ph.D. thesis and dissertations etc. Besides the
above mentioned sources, various judicial pronouncements on the subject are
thoroughly surveyed and critically analysed. To make the findings of the study to reach
a meaningful conclusion, an attempt is being made to discuss, examine and critically
evaluate different provisions of Companies Act, 1956, Companies Act, 2013,
Competition Act 2002 and Combination Regulations there under, FEMA and
regulations thereof and SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011. Thus, critical method of research is used along with descriptive and
analytical to find out lacunas in present laws and regulations.

To analyse the trends of mergers, data is collected from monthly review of Indian
economy by Centre for Monitoring Indian Economy (CMIE), World Investment Report
(WIR) of United Nations Conference on Trade and Development (UNCTAD) and
various other surveys.

1.12. Hypothesis of the Study

The hypothesis involved in the study are:

H1: The post-1991 liberalisation policies and removal of restrictions has lead to
substantial rise in merger and acquisition activity in the industrial and financial
sector of the economy.

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 H2: Our old Companies Act, 1956 did not meet the requirements of today’s
globalised world and its successor the Companies Act, 2013 also raises certain
areas of concern.

H3: No doubt, our competition law is progressive and forward looking but still
there are certain areas in it which need deliberation and further modification.

H4: SEBI Takeover Code has been overhauled recently but certain loopholes
still exist.

H5: Uncertainty created by retrospective tax amendments introduced to

overcome the judgement of Supreme Court in Vodafone case and introduction
of GAAR has hampered merger and acquisition activity in India.

H6: The lack of uniformity of acceptance of a single stand point throughout the
country on levy of stamp duty on property transferred through amalgamation has
created a lot of confusion & litigation and high stamp rates are a hurdle to
merger and acquisition activity in India.

H7: Though overall role of courts is supervisory, in a scheme of merger or

amalgamation, but the approval is not a mechanical act and the courts do not
merely act as rubber stamp.

H8: One of the reasons for the failure of merger or acquisition transaction is the
non-integration of human resources of both the transferor and the transferee
company.

H9: Proper and timely due diligence, valuation and audit of intellectual property
rights before entering into merger and acquisition is indispensable for its
success.

1.13. Research Questions

The present study makes an attempt to provide answers to the following questions:

1. Does the procedural and regulatory framework for mergers and acquisitions
promotes corporate restructuring through mergers or acquisitions or does it
require further amendments?
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2. What are the reasons that motivate a company to merge or acquire with special
reference to India?

3. What are recent emerging trends in the field of mergers and acquisitions?

4. What are the implications of new Takeover Code for the acquisitions and
takeovers in the corporate sector?

5. Is the competition policy enacted by our legislature promotes or hinders M&A

activity in India?

6. What are the taxation implications of mergers and acquisitions in India?

7. Do retrospective tax amendments and general anti-avoidance rules have lead to

the downfall of M&A activity in India?

8. Do the courts merely act as a rubber stamp in sanctioning a scheme of

amalgamation?

9. Why the valuation and due diligence of IPRs has gained significance in M&A
deals nowdays?

10. Why many mergers fail even after accomplishing all the steps in the deal
successfully?

11. How the courts have dealt with disputes regarding share exchange ratio in
mergers and acquisitions?

1.14. Chapterisation Plan

The study is divided into seven chapters:

Chapter-I: Introduction

This chapter introduces us to the complex world of mergers and acquisitions in India.
The chapter gives us a detailed exposition of various concepts involved in M&As. It
also studies extensively the motives, advantages and disadvantages of mergers. It also
traces the evolution and growth of M&As during various periods of history to the recent
emerging scenario.
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Chapter-II: Legal and Regulatory Framework for Mergers and Amalgamations

This chapter throws light on the provisions of Companies Act, 1956 i.e. (section 391 to
396A) regulating mergers and amalgamations in India along with cases. It traces the
journey of regulatory framework for mergers and amalgamations from 1956 Act to the
recently enacted Companies Act, 2013. Judiciary has always played a very important
role giving new expositions to this dynamic concept. A separate section has been
devoted to this. A separate section has also been devoted to the important changes
introduced by the Companies Act, 2013.

Chapter-III: Legal and Regulatory Framework for Takeovers and Acquisitions in

India

This chapter highlights the law on takeovers/acquisitions in India. Legal and regulatory
framework for takeovers/acquisitions comprises of the Listing Agreement, provisions of
Companies Act, 1956/Companies Act, 2013 and most importantly the SEBI (Substantial
Acquisitions of Shares and Takeovers) Regulations, 2011. The Regulations aim to
protect the interest of investors in M&A transactions. The important provisions of the
regulations have been analysed by quoting judgements of Supreme Court, High Courts
and Securities Appellate Tribunal. But still the Regulations raise certain areas of
concern which need to be deliberated upon. This chapter attempts to highlight those
grey areas in the Regulations.

Chapter-IV: Competition Act and its Impact on Mergers and Acquisitions

This chapter will focus on transformation and evolution of our anti-trust legislation
from MRTP Act, 1969 to our newly enacted Competition Act, 2002. As a critical step to
implementing the merger control regime, the commission also notified the Combination
Regulations 2011. The relevant provisions of the Competition Act alongwith these
Regulations which complete the merger control framework in India are discussed
alongwith the relevant cases.

Chapter-V: Taxation Aspects of Mergers and Acquisitions

This chapter studies the tax implications of mergers as well as acquisitions separately.
Various tax benefits available to a company on amalgamation under Income Tax Act,

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1961 are highlighted with special reference to revival of sick companies through section
72A. The highly controversial issue in Indian taxation history-Vodafone tax dispute and
its implications are studied. The impact of GAAR and transfer pricing on M&As is also
highlighted. Last but not the least, the issue of levy of stamp duty on property
transferred through amalgamation is also analysed.

Chapter-VI: Emerging Dimensions in the Field of Mergers and Acquisitions

This chapter highlights the new and the emerging dimensions in the field of M&As in
India. First of all, the dimension which has gained prominence post-2000 is the rise in
cross-border mergers and acquisitions in India. The researcher has made an important
case study in this chapter, Bharti-MTN deal fallout which brought forward many
lacunas in our laws. Second, is the increasing importance of due diligence, valuation
and audit of intellectual property rights in mergers to ensure their success. Third, the
importance of human resources in M&As have been highlighted. The failure of Air
India-Indian Airlines merger due to lack of integration of human resources has brought
human resources issues in limelight in any M&A transaction. The approach of judiciary
in protecting interest of employees in scheme of merger is also analysed.

Chapter-VII: Conclusions and Suggestions

This chapter concludes the whole study. It also highlights the areas of concern in
various laws regulating mergers and acquisitions while forwarding a blue print of
proposals so that laws regulating M&As further promote corporate restructuring
through mergers and acquisitions.

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