Mergers and Acquisition

Mergers, Amalgamations & Takeovers all through the globe have become universal practices in the corporate world covering different sectors within the nations and across their borders for securing survival, growth, expansion and globalisation of the enterprise and achieving multitude of objectives.

Meaning of terms

Mergers, consolidation, takeovers, amalgamations, acquisitions, combinations, restructuring and reconstructing are some of the terms which are required to be understood in the sense these are used. In different circumstances some of these terms carry different meanings and might not be constructed as merger or takeover in application of these sense underlying the term for a particular situation. In the following paragraphs, the meaning of these terms have been explained in the light of the definition and explained in the light of the definitions and explanations given by eminent scholars and practitioners in their works.

Merger

Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires the assets as well as liabilities of the merged company or companies. Generally, the company which survives is the buyer which retains its identity and the seller company is extinguished. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and stock of one company stand transferred to transferee company in consideration of payment in the form of equity shares of transferee company or debentures or cash or a mix of the two or three modes.

Amalgamation

Ordinarily amalgamation means merger. Halsbury’s Laws of England describe amalgamation as a blending of two or more existing undertaking into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertaking.

Andhra Pradesh High Court held in S.S. Somayajulu v Hope Prudhomme & Co. 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 absorved 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.

Madras High Court held in W.A. Beardsell & Co. (P) Ltd. 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, compromise, arrangements and reconstructions, the primary object of amalgamation of one company with another is to facilitate reconstruction of the amalgamating companies and this is matter which is entirely left to the body of shareholders of the primary company which offers or intends to amalgamate with another. There is indeed an absorption by the company with which it is amalgamated, the latter being statutorily called the transferee company and the former the transferor company. In fact, the company amalgamating and the company with which it is amalgamated are so statutorily defined under section 394(1) (b) of the Companies Act, 1956. On a prima facie examination of the relevant provisions in Chapter V, it is abundantly clear that it is essentially an affair relating to the internal administration of the transferor company. Of course, there should be consensus ad litem between the transferor company and the transferee company. The initiative thus lying on the shoulders of the transferor company, it is obligatory that a scheme or arrangement should be proposed by that company and the shareholders put on notice of such intendment and objects, and they being informed of the benefits, facilities and privileges attendant upon such an obligation. Thus, amalgamation being within the scope of the decision of the body of the shareholders, such a decision if made by the body unanimously ought not to be lightly interfered with by Court.

The Companies Act, 1956 vide sections 394 and 396A explains amalgamation which will be discussed separately under Legal Aspects of Merger. However, the term will be used interchangeably with “merger” wherever the circumstances would so require.