Boutique Business for Mergers and Acquisitions Services
Amalgamations can primarily be of two types, Mergers and Acquisitions. A merger can be defined as an amalgamation of two or more companies into one, wherein the merging entities lose their identities. No fresh investment is made through this process. However, an exchange of shares takes place between the entities involved in such a process. Generally, the company that survives is the buyer that retains its identity and the seller company is extinguished.
On the other hand, an acquisition or takeover is aimed at gaining a controlling interest in the share capital of acquired company. It can be enforced through an agreement with the persons holding a majority interest in the company’s management or through purchasing shares in the open market or purchasing new shares by private treaty or by making a take-over offer to the general body of shareholders. In this process only one company loses its identity that is the seller company.
A finer appreciation of this point need be emphasized. A takeover, which is essentially an acquisition, differs from a merger in its approach to business combinations. In the process of takeover, the acquiring company decides the maximum price that is to be offered to the acquired firm and hence takes lesser time in completing a transaction than in mergers, provided the top management of the acquired company is co-operative. In merger transactions, the consideration is paid for in shares whereas in a takeover, the consideration is in the form of cash. In a merger, a new entity may be formed subsuming the merging firms, whereas in an acquisition the acquired firm becomes the subsidiary of the acquirer firm. However, mergers and takeovers can be treated as similar processes, since in both cases at least one set of shareholders looses executive control over a corporation, which they otherwise held.
Looking up in to the legal or statutory constraints of amalgamations we see that the process of mergers or takeovers in India is governed by the sections 391 to 394 of the Companies Act, 1956 and requires the following approvals:
High Court Approvals
The company must take approval of the High Court of that state in which the registered office of the company is present.
Reserve Bank of India Approval
According to the current RBI regulations, companies cannot bid for an overseas acquisition under the automatic route, if the total funds required for the acquisition exceed 200 per cent of the Indian company’s net worth. There are several other aspects, which need to be looked at to determine if the proposed acquisition falls within the 200 per cent limit
SEBI’s Takeover Code for substantial acquisitions of shares listed in Listed Companies
On 4th November 1994, SEBI announced a take-over code for the regulation of substantial acquisition of shares, aimed at ensuring better transparency and minimizing the occurrence of clandestine deals. In accordance with the regulations prescribed in the code, on any acquisition in a company, which makes acquirer’s aggregate shareholding exceed 15%, the acquirer is required to make a public offer. The take-over code covers three types of takeovers-negotiated takeovers, open market takeovers and bail-out takeovers.