INTRODUCTION
M&As (mergers and acquisitions) play a significant role in the corporate environment. To
increase profits and brand value, every common enterprise, whether existing or developing, in the market attempts to get a competitive advantage over its rivals. Due to the intense competition in the market, many businesses decide to merge or buy one another. When two businesses come together to establish a new entity, it is called a merger. The act of one corporation purchasing another and claiming ownership is known as acquisition. The reason a company is being acquired or merged impacts its value. The corporation is valued using income-based, market-based, and asset-based techniques. Takeovers and amalgamations are two additional sporadically employed techniques alongside mergers and acquisitions. A takeover occurs when one company successfully makes an offer to purchase or control another. In a takeover, a majority stake in the target business might be acquired. Takeovers are frequently carried out through mergers and acquisitions. A target company can be found using a variety of techniques, including supply chain analysis, trade expos, and market research. A company may be taken over for several purposes, including expanding the business, distorting
the market, or getting tax benefits. Indian corporations have raised the stakes in the competition by buying overseas firms and allowing foreign firms to buy in India1
. In 1991, the Indian economy was deregulated under the leadership of Prime Minister P.V. Narasimha Rao and his Minister of Finance, Dr. Manmohan Singh, who also strongly supported mergers and acquisitions. In India's corporate landscape, where there is fierce rivalry, mergers and acquisitions have consistently been used as tools to help businesses survive. The performance and long-term viability of organisations and enterprises have regularly improved as a result of transformational change.
India is experiencing a boom in the number of entrepreneurial businesses and corporations in the twenty-first century, which will inevitably lead to a boom in the number of mergers, takeovers, and amalgamations in the Indian corporate sector.
It will be intriguing and important to see how the lawmakers alter the current legal system that regulates this industry, keeping in mind the cutting-edge requirements of the following
1 Harpreet Bedi. Merger & Acquisition in India: An Analytical Study. 4(12) Emerging Markets: Finance eJournal (2010) generation. Given that there would be a surge in the number of businesses emerging from both urban and rural areas of the nation, it is necessary to have a thorough awareness of the rulesgoverning M&As in India.
RESEARCH OBJECTIVES
To identify and analyze the factors that drive mergers, amalgamations, and takeovers in the Indian corporate landscape.
To classify and analyze the different types of mergers, amalgamations, and takeovers that have taken place in India, and examine their characteristics.
To examine the impact of mergers, amalgamations, and takeovers on the financial performance of the companies involved in India.
To analyze the impact of mergers, amalgamations, and takeovers on the competitive landscape of the Indian corporate sector.
To identify trends and future prospects for mergers, amalgamations, and takeovers in the Indian corporate landscape.
RESEARCH QUESTIONS
What has the corporate landscape of India been like in terms of mergers, amalgamations, and takeovers during the last ten years?
What are the driving forces behind takeovers, mergers, and amalgamations in India?
What are the laws regulating acquisitions, mergers, and takeovers in India, and how have they changed over the years?
What are the advantages and difficulties of takeovers, mergers, and amalgamations for Indian businesses?
How do takeovers, mergers, and amalgamations affect market competition in India?
What effects do takeovers, mergers, and amalgamations have on financial performance in India?
RESEARCH METHODOLOGY
This research paper employs a qualitative methodology. A thorough analysis of pertinent
literature on mergers, amalgamations, and takeovers in the Indian business environment, will be done. Academic journals, books, reports, and other pertinent sources will be included in this. Data collection and analysis will be done using a descriptive research approach. The study issues will be addressed using both primary and secondary data. Surveys, interviews, and focus groups with regulators, industry experts, and executives of businesses involved in mergers, amalgamations, and takeovers will be used to gather primary data. Secondary data will be gathered from sources like scholarly journals, databases, government records, and annual reports of businesses. Additionally, case studies and a regulatory study of the legal and regulatory framework that governs mergers, amalgamations, and takeovers in India will be included in the research.
TAKEOVERS
The frequency of takeovers increased dramatically over the world in the second half of the 19th century. In this context, the Industrial Revolution was crucial. A rise in takeovers was observed in countries like the United Kingdom and the United States of America, both of which had recently experienced the first wave of M&A. This was owing to an increase in the number of enterprises and an expanding entrepreneurial culture. India adopted this practice considerably later after being constrained by colonial control.
But what exactly is a takeover? A takeover is the process by which one registered company or enterprise is acquired or added to by another registered company or enterprise. The phrase "takeover" refers to the acquisition of shares through a purchase or an exchange in order to take over a legally existing business ,2,
. A takeover frequently includes two main parties: the firm
looking to purchase another business is known as the acquirer company, and the business being acquired by another business is known as the target business. The reason it is dubbed a "target company" is because a takeover is typically perceived as a calculated effort to grow a firm, making the "target" company seem like the victim or the prey. A takeover often entails acquiring or buying the shares of the company's shareholders at a predetermined price to the degree of a minimum controlling interest with the objective to seize control of the business. There are numerous ways to seize the leadership and oversight of a commercial enterprise. The management of a firm may be acquired with a majority stake in its share capital. It is crucial to remember that only listed companies can be acquired. It is also important to clarify the distinction between a takeover and an acquisition right away. When a firm buys another with the board of directors' consent, an acquisition has taken place. This happens for a variety of reasons, including boosting the firm's stock's market value, providing financial or technical support to the business, and more. When one company buys another without the board of directors' consent, it is called a takeover.
Benefits and Drawbacks of a Takeover
Takeovers have a number of benefits and advantages. First off, as was already mentioned, big businesses often want to acquire smaller rivals in order to crush them or strengthen their already dominant position. Secondly, by acquiring another business, the acquirer can benefit from and assimilate the employee skill sets, personnel, and work culture of the target business, strengthening their own overall capabilities. The third and most obvious one is that by acquiring another business, overall sales and earnings will immediately rise. Another benefit of this is that, even if not right once, the acquirer gradually rises to greater significance on both a national and a worldwide stage. It boosts the company's brand worth even more. The acquirer company can also broaden and widen the scope of the services and product lines they now offer by acquiring another business. Additionally, it allows the acquiring business to establish dominance across a variety of markets and makes it simpler for them to enter an industry or avenue that, under normal conditions, they might have found difficult to do so.
2. Jensen, Michael C. "Takeovers: Their Causes and Consequences." 2 (1), Journal of Economic Perspectives, 21-
48 (1988)
A takeover's legal implications and the process involved
In India, Section 261 of the Companies Act of 2013 deals with the creation of rehabilitation
and rebirth plans, which may involve the acquisition of a failing company by a viable one with NCLT clearance. All agreements and concessions are covered under Section 230 (11). Under
Section 250(3), NCLT has the power to direct any company administrator to take over the
firm's assets and management. Regarding the anti-competitive component of takeovers, the Competition Act of 2002 in India supervises and controls transactions that have a negative impact on market competition.
The Takeover Regulations were established to protect shareholders and to provide a secure place to work. “Mergers and acquisitions requiring the purchase of a sizable interest in a publicly traded company are governed by the Securities and Exchange Board of India (significant purchases of stocks and coups) Regulations, 2011. The industry watchdog for listed businesses is the Securities and Exchange Board of India (SEBI)”3
3 Sharma, S., & Singh, S. Corporate takeovers in India: An empirical analysis. 10(2), Journal of Management
Research, 69-85 (2010)
. A corporation is required to report all of its holdings within two days following the purchase of 5% or more of the target firm, which is another publicly traded company. The phrase "substantial acquisitions of shares" describes when a company purchases 5% or more of the target company's stock. In order to acquire 51 percent or more of the company's equity and takeover the business, an acquirer firm that purchases 25% or more of the remaining stock must make an unambiguous proposal to the existing shareholders for an additional 26% of the company's shares. They are only able to acquire 75% of the company's shares since the remaining 25% are held by public stakeholders who also want them to acquire more shares. In reaction to an occurrence that triggers stipulated by law, a public offer is made to the target firm's public investors in order to give them an out if they do not wish to continue with the company or the new management after the takeover
bid4.
4 Scherer, F. M. Corporate Takeovers: The Efficiency Arguments. 2(1), The Journal of Economic Perspectives,
69–82 (1988).
There are different forms of takeovers, including the following:
i. Friendly takeover - This involves a mutual agreement between the acquiring company
and the target enterprise. Both companies' managements engage in discussions and
negotiations to reach a settlement agreement, indicating the takeover. The primary
objective may be to expand business or achieve combined profits. Due to the mutually
agreed-upon nature of this takeover, it is also known as a "negotiated takeover."
ii. Hostile takeover - This type of takeover is fundamentally different from a friendly
takeover. The acquirer company's management or think-tank adopts an overly
aggressive approach against the target company's reluctance. They use unilateral
methods and make no proposal or offer to the target company's management. In this
situation, the target companies show reluctance and hesitation. Companies resort to this
type of takeover when they have excessive monopoly, authority, and power and lack
the intention and patience to negotiate with the target company
In a hostile takeover, it is common for the acquiring company to be called the "black knight," while a friendly suitor is referred to as the "white knight." A "grey knight" is a third party that is not favored by the target company but seeks to benefit from the situation. A "yellow knight" is a company that initially proposes a hostile takeover but later changes its mind and agrees to negotiate for a merger. Meanwhile, "white squires" are companies that may not have the financial capacity to acquire another company outright but may attempt to purchase a stake in the target company to prevent the "black knight" from achieving its acquisition goals.
iii. Bail-out takeover - When financially struggling target companies are in a vulnerable
position, they become easy targets for acquiring companies looking to expand their
reach. This can be mutually beneficial since the acquirer company may be saving the
target company from liquidation. Creditors, particularly banks and financial institutions
with a claim on industrial assets, would seek to recover as much as possible, making
the price very tempting. If there is no other option but to sell the property, banks and
other lending institutions will consider multiple options before soliciting bids. Such a
sale may involve transferring stocks. When choosing an acquirer, the bank considers
their entire financial condition, and a bailout takeover occurs with the consent of
financial institutions and banks.
iv. Reverse takeover - A reverse takeover occurs when a privately listed company acquires a target company that is publicly listed. The goal of such a takeover is for the acquirer company to avoid an Initial Public Offering (IPO) by utilizing the benefits of the
publicly listed target company and then using its shares to list it on a credited stock
exchange. This type of takeover is common in the United States. The target company
may also be financially distressed, requiring the intervention of another company for it
to rehabilitate and remain eligible for listing on a stock exchange. A significant reverse
takeover in India was the ICICI takeover in 2002, in which ICICI merged with its
affiliated service provider, ICICI bank.
v. Horizontal takeover - A horizontal takeover is a type of takeover where one company
(the acquirer) takes over another company (the target) that belongs to the same industry,
sector, or line of business. This is often seen as a strategic move to eliminate
competition in the market and establish a monopoly.
MERGERS
A merger refers to a business deal where two enterprises or companies come together to form a bigger entity. The Companies Act of 1956 did not define mergers, but the updated Companies Act of 2013 does not provide a definition either, but rather describes a merger as occurring when two or more entities unite to create a larger entity. The assets and obligations of the companies are merged, and their business activities are treated as one. Mergers can be beneficial for many reasons, such as increasing market competition, promoting innovation and technology, diversifying, acquiring assets, improving financial capability, and more.5
5 Pawaskar, V. Effect of Mergers on Corporate Performance in India. 26(1) Vikalpa, 19-32 (2001)
There are both advantages and disadvantages to a merger. One of the benefits is that the merger immediately boosts the market presence or share of the two companies. Secondly, a merger enables diversification of products and services, and thirdly, it allows for a more comprehensive approach to research and development by combining the concerned services or
staff to enhance the existing scheme of things. Lastly, a merger results in more revenue and profits by expanding the business, which decreases the financial and economic risks incurred.
However, there are also disadvantages to a merger. The first disadvantage is that two different working cultures, practices, and methods are combined, which may not always be successful and may result in a clash between the two sides. The second disadvantage is that the collaboration between the employees of the two companies may be hindered due to a difference in opinion or working practices.
Types of Mergers:
i. Horizontal Merger - A horizontal merger is a type of merger where two companies that
are engaged in the same line of production or business combine forces to expand their
market share, assert their dominance and increase their financial potential. However,
such mergers can attract scrutiny from organizations like the Competition Commission
of India as they can result in competition issues and the formation of monopolies. Banks
and financial institutions often merge with their sister enterprises to expand the scope
of services offered.
ii. Vertical Merger - A vertical merger is a type of merger where two companies that
belong to the same industry but are engaged in different lines of business combine
forces to match the increasing demand and supply ratio. For instance, a company named
'X' that primarily manufactures two-wheelers can merge with 'Y', a company that
manufactures tyres for several companies, including 'X', to ensure uniformity,
consistency in quality and more.
iii. Conglomerate merger – A conglomerate refers to an organization that has various
businesses and companies under its control. In a conglomerate merger, two companies
from different lines of business or sectors of the industry combine to expand the
services offered and establish a corporation similar to a conglomerate. There are
primarily two types of conglomerate mergers: pure conglomerate merger and mixed
conglomerate merger6 In a pure conglomerate merger, the two merging companieshave nothing in common. In contrast, in a mixed conglomerate merger, the merging
companies are of similar nature, and the purpose is to expand or diversify the business
model.
iv. Triangular merger - This type of merger involves merging a target firm and a subsidiary
of the acquiring entity for tax and regulatory purposes. There are two types of triangular
mergers, namely, forward merger and reverse merger. In a forward merger, the target
entity is merged into a subsidiary of the acquiring company and the subsidiary remains
after the merger. In a reverse merger, a subsidiary of the acquiring company is merged
with the target entity and the target entity continues to exist after the merger7
.
v. Cash-out merger - This merger involves companies that are either part of the same
industry or related industries, but not sharing the same consumer or provider base. This
type of merger is also known as a congeneric merger, and its aim is to expand the client
base of a company by combining distribution channels.
An upstream merger occurs when a smaller company merges with a larger one, such as when a subsidiary merges with the parent company. Conversely, a downstream merger occurs when a larger company merges with a smaller one. The purpose of these mergers can vary, from reducing operational costs to simplifying management and accountability, increasing profits, and providing more resources for research and development, among other things.
AMALGAMATION
Amalgamations are a type of merger in which a large enterprise combines with one or more smaller firms to form a single entity. A famous example of this is the collaboration between the Indian company Maruti Motors and the Japanese company Suzuki, which resulted in the formation of a new entity named "Maruti Suzuki India Ltd." There are two primary types of amalgamations: amalgamation in the nature of merger and amalgamation in the nature of purpose8
.In the case of amalgamation in the nature of merger, the transferor and transferee
firms merge their stakeholders' interests and the company's profits and losses, and make
changes to the book value of equity, liabilities, and assets. Additionally, the transferor
company's shareholders hold 90% of the transferee company's stake. When the conditions for
amalgamation in the nature of a merger are not met, an amalgamation in the nature of purpose occurs, in which the transferor company purchases the transferee firm, and the transferee company's shareholders do not have a proportionate interest in the merged firm. Section 396 of the Companies Act, 1956, allows the Central Government to order the merger of two or more firms in the public interest. Some experts suggest that current provisions related to amalgamation need to be re-evaluated, and mergers should only be allowed under the supervision of courts/tribunals. They propose establishing a provision that allows the Central Government to seek approval from the Court/Tribunal for the merger of two or more companies, instead of relying on Section 396 of the Companies Act, 1956 ,9.,
6 Prateek Pathak, & Dr. Navita Nathani. Mergers and Acquisitions in India And Its Impact on Shareholders
Wealth. 4(8) Iconic Research And Engineering Journals, 33-40 (2021)
7 Ansari M A, M.mustafa, An analytical study of impact of merger & acquisition on financial performance of
corporate sector in India. 5(2) J Manag Res Anal, 113-116 (2018)
8 K. Ganimozhi and M. Kannappan.'A Study on Amalgamation and Merger of the Company. 119(17) International
Journal of Pure and Applied Mathematics. 735-747 (2018).
Chapter Fifteen of the 2013 Act covers "Compromises, Arrangements, and Amalgamations" and includes provisions related to these processes. However, other regulations are also involved in different stages of the process. The 2013 Act establishes a new regulator, the National Law Company Tribunal, which will take over the jurisdiction of the court for approving mergers once it is established. After the establishment of the Tribunal and approval of relevant rules, the provisions of the 2013 Act will be implemented.
PROMINENT EXAMPLES OF M&AS
i. Tata acquired Corus Steel in 2006 for a value exceeding $10 billion. Corus Steel was
rebranded and merged with Tata, elevating the company to become the world’s fifth-
largest steel manufacturing company. Tata’s original bid was £4.55 per unit, but after a
price war with CSN, the price was increased to £6.08 per equity10.
ii. Vodafone bought a 67% stake in Hutch Essar, the world’s leading mobile operator by
revenue, for $11.1 billion. Vodafone later paid $5.46 billion to acquire Essar’s
remaining stake in the business. The acquisition marked Vodafone’s entry into India
and eventually led to the development of Vi. However, Vodafone was later involved in
a legal dispute with the Indian Tax Department over the acquisition.
iii. The Vodafone Idea deal was reportedly valued at $23 billion. The merger created a
telecom behemoth, but rising competition from Reliance Jio and a pricing war
compelled the two companies to merge. Vodafone currently holds 45.1% of the merged
company, with the Aditya Birla group controlling 26% and Idea controlling the rest.
The acquisition was beneficial for both Vodafone and Idea. The merged company
unveiled a new corporate brand, ‘Vi,’ on September 7th.
iv. Walmart’s acquisition of Flipkart marked the corporation’s entrance into the Indian
market. Walmart outbid Amazon and paid $16 billion for a 77% share in Flipkart,
leading to eBay and Softbank relinquishing their interests. As a result of this move,
Flipkart’s logistics and distribution network expanded, and the company had earlier
acquired other e-commerce firms such as Myntra, Jabong, PhonePe, and eBay.
v. The merger of Mittal Steel and Arcelor was the most expensive deal, valued at $38.3
billion and also the most tumultuous. Mittal Steel initiated a $23 billion agreement for
Arcelor in 2006, which was later increased to $38.3 billion. However, the management
of the involved countries, such as France, Spain, and Luxembourg, opposed the deal on
patriotic grounds, leading to condemnation from the press. In response, Minister of
Commerce Kamal Nath warned that any attempt by France to sabotage the deal would
lead to a trade war between the two nations.
vi. Mindtree is a prominent software company that was founded in 1999, with V.G.
Siddhartha as one of its early investors, owning a 20.41% stake, which kihe sold to
L&T in 2019 to pay off his debts. Prior to this, L&T owned a considerable portion of
Mindtree, and after purchasing securities from V.G. Siddhartha, their overall ownership
increased to 29%, while the government offered them an open invitation, allowing them
to acquire an additional 31% shares. V.G. Siddhartha received Rs 975 from L&T, while
the general public received Rs 980. L&T then bought all of Mindtree’s equity,
accounting for 60.6% of the total. Despite the founders’ attempts to prevent the
acquisition by L&T, they were unsuccessful. After L&T gained a controlling stake in
Mindtree, three of the co-founders resigned. L&T stated that Mindtree would operate
independently of L&T Infotech and L&T Technical Support Services.
9 Tambi, Mahesh Kumar. "Impact of Mergers and Amalgamation on the performance of Indian Companies." Econ
WPA Finance (0506007) (2005).
10 Kinjal Chavda & Komal Raval. A study on financial impact of merger and acquisition of selected steel
companies in India. 2(4) GAP INTERDISCIPLINARITIES, 1-4 (2019)
CONCLUSION
Indian businesses are increasingly pursuing global mergers and acquisitions, thanks to a range of funding options available to them. This trend has led to many Indian corporations outperforming their foreign competitors in corporate restructuring both within and beyond national borders. Mergers and acquisitions are seen as a sign of a healthy and expanding economy. However, the legal structure for business restructuring should be uncomplicated and not hampered by bureaucratic obstacles. The biggest hindrance to executing mergers and acquisitions is often the lengthy judicial process required for management plan approval.
BIBLIOGRAPHY
Ansari M A, M.mustafa, An analytical study of impact of merger & acquisition on financial performance of corporate sector in India. 5(2) J Manag Res Anal, 113-116 (2018)
Harpreet Bedi. Merger & Acquisition in India: An Analytical Study. 4(12) Emerging Markets: Finance eJournal (2010)
Jensen, Michael C. "Takeovers: Their Causes and Consequences." 2 (1), Journal of Economic Perspectives, 21-48 (1988)
K. Ganimozhi and M. Kannappan.'A Study on Amalgamation and Merger of the Company.
119(17) International Journal of Pure and Applied Mathematics. 735-747 (2018)
Kinjal Chavda & Komal Raval. A study on financial impact of merger and acquisition of selected steel companies in India. 2(4) GAP INTERDISCIPLINARITIES, 1-4 (2019)
Pawaskar, V. Effect of Mergers on Corporate Performance in India. 26(1) Vikalpa, 19-32 (2001)
Prateek Pathak, & Dr. Navita Nathani. Mergers and Acquisitions in India And Its Impact on Shareholders Wealth. 4(8) Iconic Research And Engineering Journals, 33-40 (2021)
Scherer, F. M. Corporate Takeovers: The Efficiency Arguments. 2(1), The Journal of Economic Perspectives, 69–82 (1988).
Sharma, S., & Singh, S. Corporate takeovers in India: An empirical analysis. 10(2), Journal of Management Research, 69-85 (2010)
Tambi, Mahesh Kumar. "Impact of Mergers and Amalgamation on the performance of Indian, Companies." Econ WPA Finance (0506007) (2005).
AUTHORED BY :-
AMAN SINGLA
BA.LLB :- 4TH YEAR
SYMBIOSIS LAW SCHOOL ,HYDERABAD
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