I take this opportunity to express my gratitude to all those who
encouraged and guided me in completing my present research work. First and foremost, I would like to thank Dr. K.P.S. Mahalwar, Head and Dean, Faculty of Law, M .D. University, Rohtak, who is my supervisor, for his valuable guidance, constructive help and whole hearted support given to me from time to time during my research work. I am also thankful to all the faculty members, for their valuable advice and support in completing my thesis. I have no words to express my gratitude for the valuable guidance by my father, Shri Satish Kumar and by my mother Smt. Kamlesh, who helped me a lot in choosing subject to complete research work. When I decided to join the research work, they encouraged me to join the research work from this esteemed University. Apart from the, above I would like to thank all my colleagues and Library Staff of my University who have helped me a lot and cooperated me in providing relevant books and material from time to time. It would be unjust if I fail to express my gratefulness to my younger brother Nishant and my husband Mr. Nitesh Sandhu and my son Gunaditya who inspired me a lot and assisted me in writing this thesis without their cooperation, it was not possible to complete this work. Place : Rohtak (Komal) Date :
AMALGAMATION OF COMPANY IN INDIA INTRODUCTION Amalgamation is defined as a simple arrangement or reconstruction of business. It is a process that involves combining of two or more companies as either absorption or as blend. Two or more companies can either be absorbed by an entirely new firm or a subsidiary powered by one of the basic firm. In such cases all the shareholders of the absorbed company automatically become the shareholders of the ruling company as the amalgamating company loses its existence. All the assets and liabilities are also transferred to the new entity.
Amalgamation has given different forms to different actions in due course of the merger taking place. It can either be classified in the nature of merger or in the nature of purchase. If the process takes place in the nature of merger then the all assets, liabilities, and shareholders holding not less than 90% of equity shares are automatically transferred to the new company or the holding company by virtue of the amalgamation.
When amalgamation takes place in nature of purchase then the assets and liabilities of the company are taken over by the ruling company. All the properties and characteristics of amalgamating company should vest with the other company. Even the shareholders holding shares not less than 75% should transfer their shares to the transferee company. In such a case any company does not purchase the business resulting in a takeover, the transferor company does not completely lose its existence. Normally, there are two types of amalgamations. The first one is similar to a merger where all the assets and liabilities and shareholders of the amalgamating companies are combined together. The accounting treatment is done using the pooling of interests method. It involves laying down a standard accounting policy for all the companies and then adding their relevant accounting figures like capital reserve, machinery, etc. to arrive at revised figures. The second type of amalgamation involves acquisition of one company by another company. In this, the shareholders of the acquired company may not have the same equity rights as earlier, or the business of the acquired company may be discontinued. This is like a purchase of a business. The accounting treatment is done using a purchase method. It involves recording assets and liabilities at their existing values or revaluating them on the basis of their fair values at the time of amalgamation
AMALGAMATION GROUP COMPANY PROFILE The Amalgamations seed was sown in 1938 with one man's vision for a prosperous, industrialised India. Shri. S. Anantharamakrishnan, or J as he was fondly known as, was a visionary who dared challenge the impediments to India's Industrial future. He pioneered many ventures and spearheaded the quest for sourcing the finest technologies in the world.
The Amalgamations saga was born when it took over the 100 year old Simpsons in 1941. Amalgamations soon brought under its shade some of the oldest companies in Southern India like Higginbothams, Associated Printers, Associated Publishers, Addison & Co., SRVS, George Oakes, T.Stanes, The United Nilgiri Tea Estates and Stanes Amalgamated Estates.
From the mid 1950s, the auto component manufacturing companies of the Group have worked with practically every major OEM in the country, to bolster their import substitution requirements. Strong collaborations with international market leaders have influenced the technology advancements. These, combined with technological innovations and strong initiatives on new product development, have contributed substantially to a strong equity in the After-markets as well, ably supported by vibrant national distribution networks. The Group's overseas presence and distribution have over time, moved from strength to strength.
The Group's R&D facilities have focused on proactive product development and have cemented a strong base in the domestic and overseas markets. In fact, several of the Group Companies have obtained ISO, QS, TS and other international certifications for quality and environmental management systems.
As a business philosophy, the Group companies maintain their leadership status by focusing on new generation technologies. A carefully calibrated strategy of the product-market matrix has enabled sharp focus on the product range, R&D capabilities and new technologies, besides sales and distribution. These initiatives have enabled the Group to build a sound technology platform, with strong in-house capabilities. Today, the Group is one of India's largest Light Engineering Conglomerates It has 47 companies and 50 manufacturing plants with presence in Manufacturing, Trading & Distribution, Plantations and Services.
DEFINATIONS OF AMALGAMATION Amalgamation Nowhere in the Companies Act is the term amalgamation defined. It is said to be a term of art without any clear or precise legal meaning. However Halsbury has attempted a definition which reads, Amalgamation is the blending of two or more existing undertaking into one undertaking with the shareholder of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings14 . Weinberg defines Amalgamation in his book on the Takeovers and Amalgamations 2nd edition 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 companies) which has its two shareholders all or substantially all the shareholders of the two companies. In essence under a merger two or more companies are merged either de-jure by consolidation of their undertakings or de-facto by the acquisition of a controlling interest in the share capital of one by the other or of the capital of both by a new company. This is the view of Gower. 15 According to Mitras Legal and Commercial Dictionary the term amalgamation
means merger16 .
14 Halsbury Laws, Third Edition, Vol. 6, Pg.764 15 Gower, Principles of Modern Company Law, Third edition, Pg. 61 16 Mitras Legal and Commercial Dictionary as quoted.6 According to Websters Dictionary amalgamation means to compound, consolidate or combine the interest of firms. Oxford Economic Papers defines amalgamation as uniting of two companies, the shareholders in each unit emerging as shareholders in the resultant organization. The companies are often of similar size. Thus, the success of the consumer co-operative movement depends upon the extent to which the smaller units are amalgamated with similar neighbouring primary consumers stores to secure the benefits of economics of scale and provide diversified services to cater to the tastes and needs of consumers.17 According to the Concise Law Dictionary it means merging of two or more business concerns into one. The English Oxford Dictionary defines amalgamation as combining to form a new corporate or structure. There may be amalgamations either by the transfer of two or more undertakings to a new company or by the transfer of two or more undertakings to an existing company 18 . The meaning of the term given in Section 2 (1B) of Income Tax Act, 1961 which has peculiar characteristics to be found in a transaction to be covered under the definition due to a) vesting of all properties of amalgamating company in the amalgamated company, b) vesting of all liabilities of amalgamating company in the amalgamated company and c) the shareholder of the amalgamating company holding not less that 90% of the shares should become shareholders of the amalgamated company19 .
In Heavy Head and co-Vs. Roprer Holdings Ltd., it is stated that, The effect of an arrangement would be one of the companies involved to absorb the business and all
17 Acquisition Objectives and Policies, Oxford Economic Papers, Vol.49, No.3, July 1997. 18 Magnus & Estrin, Companies Law and Practice, Fourteenth Edition, Pg. 216 19 Section 2(1B) Income Tax Act, 1961, 7 assets and liabilities of the other, the latter being then dissolved, or alternatively, both companies might be absorbed into a new company formed for that purpose.20 Not only this the Andhra Pradesh High Court held in S.S. Somajulu vs. Hope Pradhomme and Co,21 that the word amalgamation has no definite legal meaning. It contemplates a state of things under which tow companies are so joined as to form a third entity or one company is absorbed or blended with another company. Amalgamation doesnt involve a formation of new company to carry on the business of old company. According to S.C. Sen the term amalgamation which is used in relation to companies has no technical meaning and thus falls on one or other of the following heads (a) Transfer of undertaking of an existing company to another existing company, of which all the members of the transferring company become members, and the subsequent dissolution of the transferring company. (b) The transfer of undertaking of two or more existing companies to a new company formed to takeover the same, of which all the members of the transferring company become or have the right to become members, and the subsequent dissolution of transferring company. (c) the acquisition by one company of the whole of or a controlling interest in the shares of another company. S.Shiva Ramu has given similar definition for the merger/amalgamation. He defines in amalgamation a new corporation is created by uniting companies voluntarily. According to Brookfields Lawyers Commercial Tax an amalgamation involves the blending of business of one company with the business of one or more companies to form an amalgamated company. Shareholders of each blending company become the shareholders in the amalgamated company. The result of amalgamation is that each of the amalgamated company ceases to exist. If company A amalgamates with company B and Company A is the amalgamated company, company A survives
and company B doesnt. Alternatively, it might be desirable to establish a new company. Company C, to be the amalgamated (surviving) company to which the
20 Hooper vs. Western Countries and South Western Telephone Co., 41 WR 84 (PC). 21 (1963) 2 Comp. LJ 61(AP) 8 business of company A and company B are to be transferred. In that case both companies A and B would strike off and ceases to exist.22 Their business would continue to operate through company C. After all these definitions a new question arises. Are amalgamations and mergers synonymous? Very often, the two expressions Merger and amalgamation are taken as synonymous but in fact, a difference, merger is a restricted to a case where the assets and liabilities of the companies get vested in another company, the company which is merged losing its identity and its shareholders becoming shareholders of other company. On the other hand, amalgamation is an arrangement, whereby the assets and liabilities of two or more companies become vested in another company (Which may or may not be one of the original companies) and which would have as its shareholders substantially, all the shareholder of the amalgamating companies. It is submitted that they are not. Merger is the whole of which amalgamations is a part. When companies coalesce or firms unite in some form the result is variously described as an absorption, amalgamation, fusion, merger, or takeover. Although the word amalgamation is commonly used by businessmen, of recent, the word merger has been preferred because it covers a wide range of ways and means by which the union is achieved23 . To Weston24 merger covers acquisitions, absorptions, amalgamations and combinations. There for the reader is advised that the term merger used in this and subsequent chapters includes amalgamations in absence of specific reference of the term amalgamation. Mergers or amalgamations result in the combination 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
22 Brookfields Lawyers, Tax Issues Merger and Acquisition, Brookfields Lawyers-Commercial/Tax, 2002, Pg.57. 23 Ronald W Moon, Business Mergers and Takeovers, 24 JF Weston, Role of Mergers in Growth of Large Firms, , Pg.59 entities involved in such a process. Generally, the company that survives is the buyer which retains its identity and the seller company is extinguished. A merger can also be defined as an amalgamation if all assets and liabilities of one company are transferred to the transferee company in consideration of payment in the form of equity shares of the transferee company or debentures or cash or a mix of above modes of payment Reasons and motivations for merger and acquisitions: Companies undertake merger and acquisition to achieve certain strategic and financial objectives. In modern finance the shareholder wealth maximisation theory and managerial utility theory is being considered as a rational criterion as to what fundamentally derives acquisitions and mergers. Merger and acquisitions are caused with the support of shareholders, managers and promoters of combining companies. The factors which motivate shareholders, managers and promoters to lend support to these combinations can be summarised as follows:
cost per unit is decreased through increased production.
company will be absorbing the major competitor and thus increase its to set prices. a stock broker can sign up the bank customers for brokerage account.
form of revenue enhancement and cost savings. s tax right off i.e. wherein a sick company is bought by giants.
results of a company, which over the long term smoothens the stock price of the company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.. From the viewpoint of the shareholders It is based on the shareholders wealth maximisation theory that means a firms decision or merger of acquisition should be based on the objective of maximising the wealth of shareholders of the firm. This approach hypotheses that managers try to pursue those mergers and acquisition activities which offer positive net present value. The basic pattern of merger and acquisition activities is that the divesting company moves from a diversifying strategy to concentrate on core activities in order to increase competitiveness. Both patterns are based on an attempt to create value for the shareholders. Management buyouts help to restructure the firms, resulting in a realignment of the interests of the shareholders and managers. Managements buyouts provide incentive to managers (who are shareholders themselves) to maximised shareholding. The shareholder wealth maximised criterion is satisfied when the added value created by acquisition exceeds the cost of acquisition. Added value from acquisition = value of acquirer and acquired after acquisition their aggregate value before Increase in acquirer share value = added value cost of acquisition Cost of acquisition = acquisition transaction cast acquisition premium Acquisition transaction cost is incurred when an acquisition is made, in the form of various advisers fees like the stock exchange fees, cost of underwriting, regulators fees. The acquisition premium is the excess of offer price paid to the target over the target pre-bid-price and is also known as the control premium. Then investment made by the shareholders in the companies subject to merger should enhance in value. Shareholders may gain from mergers in different ways viz. from the gains and achievements of the company through:
Diversification of product line
stment opportunities in combination
RESEARCH Title of the Thesis: A Study of Amalgamation of Companies in India Abstract: Even though mergers and acquisitions (M & A) have been an important element of corporate sector all over the world from several decades, research on mergers and acquisitions has not been able to provide the complete knowledge about legal framework of Amalgamation. There is no conclusive evidence on whether they enhance efficiency or destroy wealth. There is thus an ongoing global debate on the effects of mergers and acquisitions on industries.
Though mergers and acquisitions have become common in India today but, very little appears to be known about their procedure and the legal angle in takeovers. Our study attempts to fill this gap in knowledge about mergers and acquisitions in India. In my first chapter there is a detail description about meaning and definition of amalgamation, merger, acquisition as well as takeover, I have quoted different definition, given by major legal dictionaries and definition given by philosopher and writer. From the perception of business organizations, there is a whole host of different mergers. However, from an economist point of view i.e. based on the relationship between the two merging companies, mergers are classified into following: 1. Horizontal merger. 2. Vertical merger.3. Circular merger 4. Conglomerate merger 5. Within stream merger 6. Diagonal On the other hand acquisition will be classified as negotiated and friendly, open market or hostile takeover and Bailout takeover. In our Third Chapter legal provisions related to takeover and merger from different Acts of India are discussed. Such as the procedure amalgamations are given in section 390 to 395 of companies Act, 1956 which deals with arrangement, amalgamation and merger. Section 5 and 6 of Competition Act, 2002 deal with combinations which defines combination by reference to assets and turnover exclusively in India and outside India also. The Foreign Exchange Management Act, prescribes to foreign entities. The Foreign Exchange Management (Transfer or issue of security by a person residing out of India) Regulation, 2000 issued by RBI vide GSR No. 406 (e) dated 3rd may, 2000. RBI also issued detailed guidelines on foreign investment in India vide foreign direct investment schemes contained in schedule I of said regulation. Major question arose after Vodafone case in last year about income tax provisions related to cross border mergers in industry. Section 2(1B) relating to Income Tax
Act provide condition to be followed in merger process for tax liabilities on both companies. Stamp Act provision varies from state to state in nowadays intellectual property related provisions also taken into consideration at the time of amalgamation of companies.Fourth chapter brings out the comparative study between USA, UK and Indian legal provisions. In Fifth chapter emerging trends of mergers in the new economic scenario have been discussed. Indian Industry saw a spurt in outbound Merger and Acquisition in 2010 driving home the point that Indian companies are keen to make up for lost time. The biggest transaction was Airtels $ 10.7 billion acquisition of Zain Africa to explore new markets. The total Merger and Acquisition in year 2010 was close to $ 50 billion mark across 623 transactions inching towards the bench mark year of 2007. Since liberalization, India has experienced a number of Hostile takeover attempts. Hostile takeover of companies is a well known phenomenon in corporate sphere. Since liberalization corporate takeover take two forms friendly and hostile, takeover. In a friendly takeover, the controlling group sells its controlling shares to another group of its own accord. In a hostile takeover, an outside group launches a hostile attack to take over the control of the company without the con-currence of existing controlling group. This is normally done by means of an open offer for purchase of equity shares from the shareholder of the target company. Seventh chapter deals with various judgments related to different field of mergers with a view to study the changing aspect in field of merger activity. Now what kind of legal regime is suitable for India? Already there are suitable FDI limits in various sectors. This implies the need to look at the existing laws within the country. There are already certain laws governing domestic mergers and there are certain tax benefits in cases of mergers which are of a domestic nature. Suggestions related to betterment of working of mergers are given in the concluding last chapter. After Foreign Direct Investment policies becoming more liberalized Mergers, Acquisitions and alliance talks are growing and are growing
with an ever increasing cadence. They are no more limited to one particular type of business. The list of past and anticipated mergers covers every size and variety of business mergers are on the increase over the whole marketplace, providing platforms for the small companies being acquired by bigger ones. The basic reason behind mergers and acquisitions is that organizations merge and form a single entity to achieve economies of scale, widen their reach, acquire strategic skills, and gain competitive advantage. In simple terminology, mergers are considered as an important tool by companies for purpose of expanding their operation and increasing their profits, which is faade depends on the kind of companies being merged. Indian markets have witnessed burgeoning trend in mergers which may be due to business consolidation by large industrial houses, consolidation of business by multinationals operating in India, increasing competition against imports and acquisition activities. Therefore, it is ripe time for business houses and corporate to watch the Indian market, and grab the opportunity
CASE STUDY Cinemax India approves amalgamation of company with PVR Cinemax India has informed BSE that the Board of Directors of the Company at its meeting held on June 15, 2013, approved the amalgamation of Cinemax India Limited with PVR Limited. 1 0 0Google +0 0 Cinemax India Ltd has informed BSE that the Board of Directors of the Company at its meeting held on June 15, 2013, approved the amalgamation of Cinemax India Limited with PVR Limited.The Board of Directors of the Company, based on the Joint valuers report received from Independent Valuers, M/s. Hari Bhakti & Co. and M/s. S.S.P.A. & Co. - Chartered Accountants and further based on Fairness Opinion Report received from AXIS Capital, Category-I Merchant Banker and as per the report received from the Audit Committee recommending the draft scheme taking in to consideration inter-alia the aforesaid Valuation Reports, approved the Swap ratio i.e. for every 7 Equity Shares of face value of Rs. 5/- each of Cinemax India Limited, issue of 4 Equity Shares of face value of Rs. 10/- each of PVR Limited. The Board of Directors also approved the Scheme of Amalgamation for the merger of Cinemax India Limited with PVR Limited.Source : BSE
CASE STUDY Vodafone Indias proposed amalgamation hits a roadblock
New Delhi: Vodafone India Ltds proposed amalgamation of its operating subsidiaries has hit a roadblock with the department of telecommunications (DoT) ruling that the merged entity would have to sign an undertaking to migrate to the new unified licence notified by the government last week. Analysts say this will be disadvantageous to Vodafone as under the new norms it would have to pay for the spectrum it already owns, weakening the case it is fighting against the Indian government. The DoT has termed Vodafones proposed amalgamation a merger and acquisition (M&A) activity. Vodafone Mobile Service Ltd shall give an undertaking to the effect that the merged entity shall migrate to UL (Unified Licence) regime and all licencees involved in the merger and acquisition activity will migrate to UL regime, the DoT said in a 27 August letter to Vodafone in response to its proposal for the amalgamation. Mint has reviewed the letter. A telecom operator has to migrate to the new unified licence if it wants to offer a new service or its existing licence is expiring, or if it is a new entity formed as a result of a merger or acquisition. Vodafone India operates through a number of subsidiary companies including Vodafone East Ltd, Vodafone South Ltd, Vodafone Cellular Ltd, Vodafone Digilink Ltd, Vodafone West Ltd and Vodafone Spacetel Ltd. The telco has proposed to merge the first four entities with Vodafone Mobile Services and the last two with Vodafone Services Ltd. DoTs reply was in reference to letters by Vodafone dated 12 and 18 July. Vodafone first proposed the amalgamation last year in connection with an initial public offering (IPO) of its shares. It has since dropped the plan, citing weak market conditions, regulatory uncertainty and the ongoing Rs.20,000 crore tax issue (including penalties and interest) being fought between its parent company and the Indian government. Analysts said Vodafone will be against migrating to the new unified licence at this time for a number of reasons. The biggest impact will be to the licence extension case that they are fighting in the courts. Migrating to the unified licence would mean they would have to pay for the spectrum they have. Their main argument in court is that the spectrum they have is already liberalized and, therefore, they do not need to pay the market price for liberalizing it again, a Mumbai-based analyst with a multinational brokerage said, requesting anonymity. The UL essentially delinks the licence from the spectrum and to migrate they would have to pay for the spectrum and the licences separately, while the current UASL (unified access services licences) were allotted to them with spectrum bundled, he added. The amalgamation is also necessary for Vodafone Group Plc, the UK-based parent, to be able to increase its holding in its Indian units to 100%, but this can be worked around, the analyst said. Also, crossholding restrictions in the new licence norms will require Vodafone to sell its 9.9% stake in Bharti Airtel Ltd, Indias largest telecom services provider. DoT has also asked the telco for a break-up of its foreign equity holdings for all the companies involved in the proposed amalgamation. A Vodafone spokesperson declined to comment for this story. People familiar with the matter said Vodafone had adopted a wait-and-watch stance given that the Telecom Regulatory Authority of India is working
on recommendations for M&As, spectrum trading and valuation, which will have an impact on the companys plans for an IPO later and increasing investment by its parent. Last month, the government increased the foreign direct investment (FDI) limit in telecom to 100%, from 74% earlier. Vodafone Group owns 74% in Vodafone India and the remaining stake is held by the Piramal family (11%) and other Indian investors. Late last year, Vodafones attempts for an amalgamation were hindered by the tax dispute with the Indian government.