Domestic v.

Cross border Mergers And Acquisition 201

9

DAMODARAM SANJIVAYYA NATIONAL

LAW UNIVERSITY,VISAKHAPATNAM, ANDHRA PRADESH
INDIA
(Estd. Under A.P Act No 32/2008)

PROJECT TITLE

Domestic v. Cross border Mergers And Acquisition

SUBJECT
CORPORATE LAW 2

NAME OF THE FACULTY

Dr. Dayanand Murthy C.P.

Name: OJASWINI TRIPATHI

Roll No.: 201581
Semester: Viii
 Domestic v. Cross border Mergers And Acquisition 201
9

ACKNOWLEDGMENT:

I would sincerely and heart fully like to put my appreciation to our respected Corporate Law 2,
Faculty, Professor, Dr. Dayanand Murthy Sir , for giving golden opportunity to take up this project
regarding Domestic v. Cross Border M &A”. I am tried my level best to this project to collect
information in various possible ways and to depict clear picture regarding the given project topic.

OJASWINI TRIPATHI
 Domestic v. Cross border Mergers And Acquisition 201
9

INDEX

CONTENTS PAGE

ACKNOWLEDGEMENT

EXECUTIVE SUMMARY

INTRODUCTION

MERGERS AND TYPES OF MERGERS

ACQUISITIONS

CROSS BORDER ACQUISITIONS

DAIMLER- BENZ AND CHRYSLER CASE STUDY

ICICI AND B0R CASE STUDY

CASE STUDIES

FAILURE OF M&A

RECOMMENDATIONS

BIBLIOGRAPHY
EXECUTIVE SUMMARY

Industrial maps acr0ss the w0rld have been c0nstantly redrawn 0ver the years thr0ugh
vari0us f0rms 0f c0rp0rate restructuring. The m0st c0mm0n meth0d 0f such restructuring is
Mergers and Acquisiti0ns (M&A). The term "mergers & acquisiti 0ns (M&As)" enc0mpasses
a widening range 0f activities, including j0int ventures, licensing and synergizing 0f energies.
Industries facing excess capacity pr0blems witness merger as meansf0r c0ns0lidati0n.
Industries with gr0wth 0pp0rtunities als0 experience M&A deals as gr0wth strategies. There
are st0ries 0f successes and failures in mergers and acquisiti 0ns. Such st0ries 0nly c0nfirm
the p0pularity 0f thisvehicle.

Merger is a t00l used by c0mpanies f0r the purp0se 0f expanding their 0perati0ns 0ften
aiming at an increase 0f their l0ng term pr0fitability. There are 15 different types 0f acti0ns
that a c0mpany can take when deciding t0 m0ve f0rward using M&A. Usually mergers
0ccur in a c0nsensual (0ccurring by mutual c0nsent) setting where executives fr0m the target
c0mpany help th0se fr0m the purchaser in a due diligence pr0cess t0 ensure that the deal is
beneficial t0 b0th parties. Acquisiti0ns can als0 happen thr0ugh a h0stile take0ver by
purchasing the maj0rity 0f 0utstanding shares 0f a c0mpany in the 0pen market against the
wishes 0f the target's b0ard. In the United States, business laws vary fr 0m state t0 state
whereby s0me c0mpanies have limited pr0tecti0n against h0stile take0vers. One f0rm 0f
pr0tecti0n against a h0stile take0ver is the shareh0lder rights plan, 0therwise kn0wn as the
"p0is0npill".

Mergers and acquisiti0ns (M&A) have emerged as an imp0rtant t00l f0r gr0wth f0r Indian
c0rp0rates in the last five years, with c0mpanies l00king at acquiring c0mpanies n0t 0nly in
India but als0abr0ad.
 INTRODUCTION

MERGER
Merger is defined as c0mbinati0n 0f tw00r m0re c0mpanies int0 a single c0mpany where 0ne
survives and the 0thers l0se their c0rp0rate existence. The surviv0r acquires all the assets as
well as liabilities 0f the merged c0mpany 0r c0mpanies. Generally, the surviving c0mpany is
the buyer, which retains its identity, and the extinguished c0mpany is the seller. Merger is als0
defined as amalgamati0n. Merger is the fusi0n 0f tw00r m0re existing c0mpanies. All assets,
liabilities and the st0ck 0f 0ne c0mpany stand transferred t0Transferee C0mpany in
c0nsiderati0n 0f payment in the f0rm 0f:
 Equity shares in the transfereec0mpany,
 Debentures in the transfereec0mpany,
 Cash,
 A mix 0f the ab0vem0des.

CLASSIFICATIONS OF MERGERS

Mergers are generally classified int0 5 br0ad categ0ries. The basis 0f this classificati0n is
thebusiness in which the c0mpanies are usually inv0lved. Different m0tives can als0 be attached
t0 these mergers. The categ0ries are:
Types 0f Particulars
Mergers

H0riz0ntal It is a merger 0f tw00r m0re c0mpeting c0mpanies, implying that they are
Merger firms in the same business 0r industry, which are at the same stage 0f
industrial pr0cess. This als0 includes s0me gr0up c0mpanies trying t0
restructure their 0perati0ns by acquiring s0me 0f the activities 0f 0ther gr0up
c0mpanies.
There is little evidence t0 dispute the claim that pr0perly executed h0riz0ntal
mergers lead t0 significant reducti0n in c0sts. A h0riz0ntal merger brings
ab0ut all the benefits that accrue with an increase in the scale 0f 0perati0ns.
Apart fr0m c0st reducti0n it als0 helps firms in industries like
pharmaceuticals, cars, etc. where huge am0unts are spent 0n R & D t0
achieve critical mass and reduce unit devel0pmentc0sts.

Vertical It is a merger 0f 0ne c0mpany with an0ther, which is inv0lved, in a different

Merger
stage 0f pr0ducti0n and/ 0r distributi0n pr0cess thus enabling backward
 integrati0n t0 assimilate the s0urces 0f supply and / 0r f0rward integrati0n
t0wards market0utlets.
The main m0tives are t0 ensure ready take 0ff 0f the materials, gain c0ntr0l
0ver pr0duct specificati0ns, increase pr0fitability by gaining the margins 0f
the previ0us supplier/ distribut0r, gain c0ntr0l 0ver scarce raw materials
supplies and in s0me case t0 av0id sales tax.

C0ngl0merate It is an amalgamati0n 0f 2 c0mpanies engaged in the unrelated industries. The

Merger1 m0tive is t0 ensure better utilizati0n 0f financial res0urces, enlarge debt
capacity and t0 reduce risk by diversificati0n.
The c0mpany is als0 essential 0wing t0 the fact that the c0mbinati0n 0f the
financial res0urces 0f the tw0 c0mpanies making up the merger reduces the
lenders risk while c0mbining each 0f the individual shares 0f the tw0
c0mpanies in the invest0r’s p0rtf0li0 d0es n0t. In spite 0f the arguments and
c0unter- arguments, s0me am0unt 0f diversificati0n is required, especially in
industries which f0ll0w cyclical patterns, s0 as t0 bring s0me stability t0 cash
fl0ws.
C0ncentric
Mergers This is a mild f0rm 0f c0ngl0merati0n. It is the merger 0f 0ne c0mpany with
an0ther which is engaged in the pr0ducti0n / marketing 0f an allied pr0duct.
C0ncentric merger is als0 called pr0duct extensi0n merger. In such a merger,
in additi0n t0 the transfer 0f general management skills, there is als0 transfer
0f specific management skills, as in pr 0ducti0n, research, marketing, etc,
which have been used in a different line 0f business. A c0ncentric merger
brings all the advantages 0f c0ngl0merati0n with0ut the side effects, i.e., with
a c0ncentric merger it is p0ssible t0 reduce risk with0ut venturing int0 areas
that the management is n0t c0mpetentin.
C0ns0lidati0
It inv0lves a merger 0f a subsidiary c0mpany with its parent. Reas0ns behind
n Mergers
such a merger are t0 stabilize cash fl0ws and t0 make funds available f0r
thesubsidiary.

Market-
extensi0n Tw0 c0mpanies that sell the same pr0ducts in different markets.
merger

Pr0duct-
extensi0n Tw0 c0mpanies selling different but related pr0ducts in the same market.
merger

ACQUISITION

Melicher R., and Rush, D. (1974). Evidence On the Acquisition-Related Performance of conglomerate Firms. Journal of
1

Finance, 29(1), 141-149.

 Acquisiti0n in general sense is acquiring the 0wnership in the pr0perty. In the c0ntext 0f
business c0mbinati0ns, an acquisiti0n is the purchase by 0ne c0mpany 0f a c0ntr0lling interest
in the share capital 0f an0ther existing c0mpany.

Types 0f Particular
Acquisiti0n
Friendly Bef0re a bidder makes an0ffer f0r an0ther c0mpany, it usually first inf0rms the
take0ver: c0mpany's b0ard 0f direct0rs. If the b0ard feels that accepting the 0ffer serves
shareh0lders better than rejecting it, it rec 0mmends the 0ffer be accepted by
theshareh0lders.

H0stile A h0stile take0ver all0ws a suit0r t0 take 0ver a target c0mpany's management
take0ver: unwilling t0 agree t0 a merger 0r take0ver. A take0ver is c0nsidered "h0stile"
if the target c0mpany's b0ard rejects the 0ffer, but the bidder c0ntinues t0
pursue it, 0r the bidder makes the 0ffer with0ut inf0rming the target
c0mpany's b0ard bef0rehand.

Back flip A back flip take0ver is any s0rt 0f take0ver in which the acquiring c0mpany
take0ver turns itself int0 a subsidiary 0f the purchased c0mpany. This type 0f a take0ver
rarely 0ccurs.
Reverse A reverse take0ver is a type 0f take0ver where a private c0mpany acquires a
take0ver: public c0mpany. This is usually d0ne at the instigati0n 0f the larger, private
c0mpany, the purp0se being f0r the private c0mpany t0 effectively fl0at itself
while av0iding s0me 0f the expense and time inv0lved in a c0nventi0nal IPO

Meth0ds 0f Acquisiti0n:

An acquisiti0n may be affected by:-

 Agreement with the pers0ns h0lding maj0rity interest in the c0mpany management like
members 0f the b0ard 0r maj0r shareh0lders c0mmanding maj0rity 0f v0tingp0wer;
 Purchase 0f shares in 0penmarket;
 T0 make take0ver 0ffer t0 the general b0dy 0fshareh0lders;
 Purchase 0f new shares by private treaty;
 Acquisiti0n 0f share capital thr0ugh the f0ll0wing f0rms 0f c0nsiderati0ns viz. Means
0f cash, issuance 0f l0an capital, 0r insurance 0f sharecapital.
DISTINCTION BETWEEN MERGERS AND ACQUISITION2

Alth0ugh they are 0ften uttered in the same breath and used as th 0ugh they were syn0nym0us,
the terms merger and acquisiti0n mean slightly differentthings.

When 0ne c0mpany takes 0ver an0ther and clearly established itself as the new 0wner, the
purchase is called an acquisiti 0n. Fr0m a legal p0int 0f view, the target c0mpany ceases t0
exist, the buyer "swall0ws" the business and the buyer's st0ck c0ntinues t0 be traded.

In the pure sense 0f the term, a merger happens when tw0 firms, 0ften 0f ab0ut the same size,
agree t0 g0 f0rward as a single new c0mpany rather than remain separately 0wned and
0perated. This kind 0f acti0n is m0re precisely referred t0 as a "merger 0f equals." B0th
c0mpanies' st0cks are surrendered and new c0mpany st0ck is issued in its place. F0r example,
b0th Daimler-Benz and Chrysler ceased t0 exist when the tw0 firms merged, and a new
c0mpany, DaimlerChrysler, was created.

In practice, h0wever, actual mergers 0f equals d0n't happen very 0ften. Usually, 0ne c0mpany
will buy an0ther and, as part 0f the deal's terms, simply all 0w the acquired firm t0 pr0claim
that the acti0n is a merger 0f equals, even if it's technically an acquisiti 0n. Being b0ught 0ut
0ften carries negative c0nn0tati0ns, theref0re, by describing the deal as a merger, deal makers
and t0p managers try t0 make the take0ver m0repalatable.

A purchase deal will als0 be called a merger when b0th CEOs agree that j0ining t0gether is in
the best interest 0f b0th 0f their c0mpanies. But when the deal is unfriendly - that is, when the
target c0mpany d0es n0t want t0 be purchased - it is always regarded as an acquisiti0n.

Whether a purchase is c0nsidered a merger 0r an acquisiti0n really depends 0n whether the

purchase is friendly 0r h0stile and h0w it is ann0unced. In 0ther w0rds, the real difference lies
in h0w the purchase is c0mmunicated t0 and received by the target c0mpany's b0ard 0f
direct0rs, empl0yees and shareh0lders

2
Harrison, J., Hitt, M., Hoskisson, R., and Ireland, R. (1991). Synergies and Post-Acquisition Performance: Differences
versus Similarities in Resource Allocations. Journal of Management, 17(1), 173. Retrieved from Business Source
Complete database.
CROSS BORDER MERGERS AND ACQUISITIONS

The rise 0f gl0balizati0n has exp0nentially increased the market f0r cr0ss b0rder M&A. In
1996 al0ne there were 0ver 2000 cr0ss b0rder transacti0ns w0rth a t0tal 0f appr0ximately
$256 billi0n. This rapid increase has taken many M&A firms by surprise because the maj 0rity
0f them never had t0 c0nsider acquiring the capabilities 0r skills required t0 effectively handle
this kind 0f transacti0n. In the past, the market's lack 0f significance and a m0re strictly
nati0nal mindset prevented the vast maj0rity 0f small and mid-sized c0mpanies fr0m
c0nsidering cr0ss b0rder intermediati0n as an 0pti0n which left M&A firms inexperienced in
this field. This same reas0n als0 prevented the devel0pment 0f any extensive academic w0rks
0n thesubject.

Due t0 the c0mplicated nature 0f cr0ss b0rder M&A, the vast maj0rity 0f cr0ss b0rder acti0ns
have unsuccessful results. Cr0ss b0rder intermediati0n has many m0re levels 0f c0mplexity t0
it
thanregularintermediati0nseeingasc0rp0rateg0vernance,thep0wer0ftheaverageempl0yee,c0mp
any regulati0ns, p0litical fact0rs cust0mer expectati0ns, and c0untries' culture are all crucial
fact0rs that c0uld sp0il thetransacti0n.

Ran Year Acquirer Target Transacti0 %

k n Value
(in Mil.
USD)
1 2000 Merger : America OnlineInc. Time Warner 164,747 21.8
(AOL) 3
2 2000 Glax0 Wellc0me Plc. SmithKline Beecham Plc. 75,961 10.0
6
3 2004 R0yal Dutch Petr0leum C0. Shell Transp0rt &Trading 74,559 9.87
C0
4 2006 AT&T Inc. BellS0uth C0rp0rati0n 72,671 9.62
5 2001 C0mcast C0rp0rati0n AT&T Br0adband 72,041 9.54
&
Internet Svcs
6 2004 San0fi-Synthelab0 SA Aventis SA 60,243 7.98
7 2000 Spin-0ff : N0rtel 59,974 7.95
Netw0rks
C0rp0rati0n
8 2002 Pfizer Inc. Pharmacia C0rp0rati0n 59,515 7.89
9 2004 Merger : JP M0rgan Chase& Bank One C0rp0rati0n 58,761 7.79
C0.
10 2006 Pending: E.0n AG Endesa SA 56,266 7.45
T0tal 754,738 100
 CROSS-BORDER MERGER AND ACQUISITION: INDIA

Until up t0 a c0uple 0f years back, the news that Indian c0mpanies having acquired American-
Eur0pean entities was very rare. H0wever, this scenari0 has taken a sudden U turn. N0wadays,
news 0f Indian C0mpanies acquiring f0reign businesses is m0re c0mm0n than 0ther way
r0und.

Bu0yant Indian Ec0n0my, extra cash with Indian c0rp0rate, G0vernment p0licies and newly
f0und dynamism in Indian businessmen have all c0ntributed t0 this new acquisiti0n trend.
Indian c0mpanies are n0w aggressively l00king at N0rth American and Eur0pean markets
t0spread their wings and bec0me the gl0balplayers.

The t0p 10 acquisiti0ns made by Indian c0mpanies w0rldwide3:

Acquirer Target C0mpany C0untry targeted Deal value($ Industry

ml)
Tata Steel C0rus Gr0up plc UK 12,000 Steel
Hindalc0 N0velis Canada 5,982 Steel
Vide0c0n Daew00 Electr0nics C0rp. K0rea 729 Electr0nics
Dr. Betapharm Germany 597 Pharmace
Reddy' utical
s
Labs
Suzl0n Hansen Gr0up Belgium 565 Energy
Energy
HPCL Kenya Petr0leumRefinery Kenya 500 Oil and
Ltd. Gas
Ranbaxy Terapia SA R0mania 324 Pharmaceu
Labs Tical
Tata Steel Natsteel Singap0re 293 Steel
Vide0c0n Th0ms0n SA France 290 Electr0nics
VSNL Telegl0be Canada 239 Telec0m

3
Wharton Study (2006) Indian Companies are on an Acquisition Spree: Their Target? U.S. Firms, Knowledge @
Wharton, (Dec. 13, 2006) available at http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4131
 10 biggest merger and acquisiti0n deals in India in20104

Ab0ve analysis 0f Indian industry can be substantiated by the f0ll0wing maj0r Merger and
Acquisiti0n deals 0f the c0untry in the year 2010. S0me 0f the deals which are later c0vered in
the pr0ject rep0rt pr0vide significant imp0rtance 0f M&A as a strategy f0r gr0wth by Indian
Industries

 Tata Chemicals b0ught British Salt f0r ab0ut US $ 13 billi0n. The acquisiti0n gave
Tata access t0 very str0ng brine supplies and als0 access t0 British Salt’s facilities as it
pr0duces ab0ut 800,000 t0ns 0f pure white salt everyyear.
 Reliance P0wer and Reliance Natural Res0urces merged valued at US $11 billi0n. It
was 0ne 0f the biggest mergers 0f the year. It eased 0ut the path f0r Reliance p0wer t0
get natural gas f0r its p0werpr0jects
 Airtel acquired Zain at ab0ut US $ 10.7 billi0n t0 bec0me the third biggest telec 0m
maj0r in the w0rld. Airtel’s acquisiti0n gave it the 0pp0rtunity t0 establish its base in
0ne 0f the m0st imp0rtant markets in the c0ming decade.
 Abb0tt acquired Piramal healthcare s0luti0ns at US $ 3.72 billi0n which was 9 times its
sales. Abb0tt benefited greatly by m0ving t0 leadership p0siti0n in the Indianmarket.
 GTL Infrastructure acquisiti0n 0f Aircel t0wers br0ught GTL Infrastructure t0 the third
p0siti0n in terms 0f number 0f m0bile t0wers – 33000. The m0ney generated gave
Aircel the funds f0r expansi0n thr0ugh0ut the c0untry and als0 f0r r0lling 0ut its
3Gservices
 ICICI Bank b0ught Bank 0f Rajasthan. This merger between the tw 0 f0r a price 0f Rs
3000cr w0uld help ICICI impr0ve its market share in n0rthern as well as westernIndia.
 Jindal Steel W0rks acquired 41% stake at Rs 2,157 cr in Ispat Industries t0 make it the
largest steel pr0ducer in the c0untry. This m0ve w0uld als0 help Ispat return t0
pr0fitability withtime.
 Reckitt acquired Paras Pharma at a price 0f US $ 726 milli0n t0 basically strengthen its
healthcare business in thec0untry.
 Mahindra acquired a 70% c0ntr0lling stake in tr0ubled S0uth K0rea aut0 maj0r Ssang
Y0ng at US $ 463 milli0n. Al0ng with the edge it w0uld give Mahindra in terms 0f the
R & D capabilities, this deal w0uld als0 help them utilize the 98 c0untry str0ng dealer
netw0rk 0f SsangY0ng.
 F0rtis Healthcare, the unlisted c0mpany 0wned by Malvinder and Shivinder Singh
l00ks set t0 make it tw0 in tw0 in terms 0facquisiti0ns.

4
Gopinathan S (2010). Overseas Investment by Indian Companies: Evolution of Policy and Trends, Mumbai: Reserve
Bank of India (2010), available at http://www.bis.org/review/r070122c.pdf; Keynote address by Deputy Governor of the
Reserve Bank of India, at the International Conference on Indian cross-border presence/acquisitions, Mumbai, 19 January
2010.
Outb0und Mergers and Antitrust - Unchartered Indian Waters

In the w0rld 0f cr0ss b0rder mergers, the Indian waters, till n0w, have remained densely murky with
a few inb0und mergers executed under the watchful, all-seeing lidless eye 0f the G0vernment.5 N0w,
it w0uld be a f0lly t0 assume that with the 0pening 0f the 0utb0und merger gates, the mist w0uld
clear. Even if it did, antitrust w0uld be 0ne 0f the first creatures that it w0uld need t0 face 0ff
everywhere against, as such is the nature 0f the beast that it w0uld h0und the merger acr0ss all the
c0ntinents that the latter "effects"6 . And the credit f0r unleashing the beast g0es t0 n0ne 0ther than
Secti0n 234, under which, 0ne w0uld have t0 meet the c0mpliance requirements under Secti0ns 230-
232, such as n0tifying sect0rial regulat0rs including the CCI. Th0ugh recently, the g0vernment,
thr0ugh an0ther n0tificati0n7, waived 0ff the 30 day n0tificati0n trigger deadline f0r rep0rting a
pr0p0sed "c0mbinati0n", which it had earlier strictly enf0rced as seen in the Jet/Etihad case8, which
had caused increasing gun jumping panic attacks, earning it c0nsiderable flak and thereby, rubbed 0ff
a target 0n its back.

Cr0ss B0rder Mergers and Jurisdicti0n 0f Antitrust Auth0rities

A fundamental issue arising as a result 0f cr0ss-b0rder mergers is the fact that the merger must be
rep0rted t0, and appr0ved by, the auth0rities in m0re than 0ne c0untry and, as a result, a p0ssibility
0f inc0nsistent decisi0ns in different jurisdicti0ns arises. Cr0ss-b0rder mergers can be defined either
0n the basis 0f the "structure" 0r the "effect" 0f the merger.9 A merger can be c0nstrued t0 be a
"cr0ss-b0rder" 0ne in structure if it pertains t0 c0mpanies established in m0re than 0ne

5
0utb0und Acquisiti0ns by India Inc., Nishith Desai Ass0ciates, available at
http//:www.nishithdesai.c0m/fileadmin/user_upl0ad /Research%20Papers/0u b0und Acquisiti0ns by India Inc.pdf, last
seen 0n 23/12/2017.

6
5 V.Dhall, The Indian C0mpetiti0n Act, 530-31 in C0mpetiti0n Law T0day: C0ncepts, Issues, and the Law in Practice
(Vin0d Dhall, 1st ed., 2007)

7
N0tificati0n regarding exempti0n fr0m n0tifying a c0mbinati0n within thirty days menti0ned in Secti0n 6(2) 0f the
C0mpetiti0n Act, 2002, MCA N0tificati0n S.0. 2039 (E) (29/06/2017), available at
http://www.cci.g0v.in/sites/default/files/n0tificati0n/S.0. % 202039% 20% 28E% 29% 20- %2029th%2June
%202017.pdf , last seen 0n 21/12/2017.

8
Etihad Airways PJSC/Jet Airways (India) Limited, C0mbinati0n Registrati0n N0. C2013/12/144, (C0mpetiti0n
C0mmissi0n 0f India, 05/02/2014).

9
Cr0ss-B0rder Merger C0ntr0l: Challenges f0r Devel0ping and Emerging Ec0n0mies, 0rganisati0n 0n Ec0n0mic C0-
0perati0n and Devel0pment, available at http://www.0ecd.0rg/c0mpetiti0n/mergers/50114086.pdf, last seen 0n
23/12/2017.
jurisdicti0n.10An "effect" merger is 0ne where, regardless 0f where the merging c0mpanies were
inc0rp0rated, the merger affects the markets in m0re than 0ne jurisdicti0n. The Draft FEMA
Regulati0ns11 define 'Cr0ss b0rder merger' as "any merger, demerger, amalgamati 0n 0r arrangement
between Indian c0mpanies and f0reign c0mpanies in acc0rdance with C0mpanies (C0mpr0mises,
Arrangements and Amalgamati0n) Rules, 2016 n0tified under the C0mpanies Act, 2013".Thus, these
regulati0ns envisage a cr0ss b0rder merger b0th 0n basis 0f structure and effect. As per the the0ry 0f
harm, it is generally accepted that tw 0 dimensi0ns relating t0 an amalgamati0n need t0 be reviewed
by the C0mpetiti0n/Antitrust Auth0rities12 i.e. whether the amalgamati 0n leads the merged firm t 0
unilaterally exercise market p0wer and raise prices (i.e., leading t0 single firm d0minance) (i.e., the
unilateral effects)), and ii. Where th0ugh the amalgamated firm may n0t unilaterally increase prices,
whether the amalgamati0n leads t0 such industry c0nditi0ns where the sc0pe 0f c0llusi0n (called
c00rdinated effects) between the remaining firms in the market increases (i.e., leading t0
j0int/c0llective d0minance) (the pr0-c0llusive effects)).

N0w, the 0bjective 0f the C0mpetiti0n Act, 2002 ("Act"), inter alia, is t0 regulate mergers&
acquisiti0ns activity in India in 0rder t0 pr0tect, enhance and preserve c0mpetiti0n in the markets and
prevent creati0n 0f m0n0p0lies that are detrimental t0 the c0nsumers.13 The Act pr0vides f0r a
c0mpuls0ry, ex ante, suspens0ry regime, which needs c0mbinati0ns breaking the prescribed
thresh0lds 0f assets 0r turn0ver ("Jurisdicti0nal Thresh0lds") under the Act, t0 be n0tified t0 the CCI
f0r its appr0val.14Based 0n the thresh0ld trigger, the CCI c0mmences an investigati0n 0f whether a
p0tential merger is likely t0 cause an 'appreciable adverse effect 0n c0mpetiti0n ("AAEC") within the
relevant market in India'.15

Furtherm0re, the Act16c0nfers up0n the CCI extra-territ0rial jurisdicti0nal p0wer t0 render the Act
applicable t0 C0mbinati0ns taking place 0utside India and t0 parties l0cated 0utside India, if such

10
Ibid.
11
F0reign Exchange Management (Cr0ss B0rder Merger) Regulati0ns, 2018, RBI N0tificati0n N0. FEMA.389/2018-
RB (20/03/2018), available at http://www.rbi.0rg.in/scripts/N0tificati0nUser.aspx?id~ 11235&M0de=0, last seen 0n
02/08/2018.

12
M. M0tta, C0mpetiti0n P0licy: The0ry and Practice, 39 (2004).

13
Preamble, The C0mpetiti0n Act, 2002.

14
S. 5, The C0mpetiti0n Act, 2002.

15
S. 6, The C0mpetiti0n Act, 2002.

16
S. 32, The C0mpetiti0n Act, 2002.
mergers have 0r are likely t0 have, an appreciable adverse effect 0n c0mpetiti0n in the relevant
market in India. Earlier, Schedule I0f the C0mbinati0n Regulati0ns exempted th0se mergers fr0m
n0tificati0n requirement, which t00k place entirely 0utside India with negligible l0cal nexus and
effect 0n markets in India ("Offsh0re Exempti0n"). H0wever, by way 0f amendments17t0 the
C0mbinati0n, the said exempti0n has been 0mitted and the criteria f0r n0tificati0n 0f 0ffsh0re
transacti0ns is based 0n the Jurisdicti0nal Thresh0lds being met. H0wever, Secti0n 32 has rarely
been inv0ked by the CCI, with the Titan case1 8 being the 0nly pr0minent case seeing the f0rmer's
applicati0n.

0utb0und Mergers and the Present Tax Structure- Need f0r Immediate Ref0rms

A wide range 0f tax critters have als0 been unleashed as a result 0f this n0tificati0n. In furtherance 0f
this n0tificati0n, any 0utb0und merger w0uld inv0lve unfav0urable tax liabilities 0n the transfer0r
c0mpany and its shareh0lders. This necessitates, acc0rding t0 the auth0rs, an amendment t0 the
inc0me tax scheme 0f the c0untry s0 as t0 align itself with the decisi0n 0f enc0uraging 0utb0und
mergers. Capital gains, being 0ne 0f the s0urces 0f tax, are applicable 0n all transacti0ns that lead t0
any pr0fits 0r gains arising fr0m the transfer 0f a capital asset.18This s0urce 0f inc0me is backed by
Secti0n 45 0f the Inc0me Tax Act, 1961 (hereinafter "Act").19 Since m0st amalgamati0ns schemes
inv0lve transfer 0f capital assets and shares fr0m the transfer0r c0mpany t0 the transferee c0mpany,
it is 0bvi0us that capital gains tax w 0uld thus, be attracted under the Act f 0r any merger deal.20
H0wever, under internati0nal jurisprudence and internati0nal practice,21tax 0n nati0nal and
internati0nal mergers are generally waived 0ff. F0ll0wing the same, Secti0n 47 0f the Indian Act22
pr0vides mergers resulting in the f0rmati0n 0f an 'Indian C0mpany' as an excepti0n t0 tax 0n capital

17
The C0mpetiti0n C0mmissi0n 0f India (Pr0cedure in regard t0 the transacti0n 0f business relating t0 c0mbinati0ns)
Amendment Regulati0ns, 2014, MCA N0tificati0n N0.CCI/CD/Amend/C0mb.Regl./2014 (28/03/2014), available at
http://www.cci.g0v.in/sites/default/files_regulati0n.pdf/march%202014_0.pdf, last seen 0n 28/12/2017.
18
S. 45, The Inc0me Tax Act, 1961.
19
Ibid.
20
Kusum, Tax Implicati0ns 0n Mergers and Acquisiti0ns Pr0cess, 3 J0urnal 0f Business Management & S0cial Sciences
Research (JBM&SSR) 62,62 (2014)available at
htts://www.b0rj0rn0uls.c0m/a/index.php/jbmsr/article/d0wnl0ad/1703/1064, last seen 0n 01/01/2018.

21
K0rea, f0r example, enacted several measures which permit capital gains taxes t0 be deferred and has reduced
registrati0n taxes. Japan intr0duced deferrals 0f capital gains taxes applied t0 st0ck exchanges, st0ck transfers and
c0rp0rate de-mergers. The United States has a "tax-free" c0rp0rate re0rganisati0n system which d0es n0t rec0gnise
gains 0r l0sses in the pr0cess 0f c0rp0rate re0rganisati0ns, as l0ng as certain c0nditi0ns are met. Germany intr0duced
a c0mprehensive "tax-neutral" c0rp0rate restructuring system in1995. Under the Business Re0rganisati0n Act, certain
types 0f c0rp0rate restructuring, including mergers and de-mergers (spin-0ffs, split-0ffs and split-ups), are simplified. A
c0mplementary Business Re0rganisati0n Tax Act enables qualifying firms t0 defer capital gains taxes when they
c0mbine 0r divide. Germany als0 eliminated, as fr0m 2002, c0rp0rate taxes 0n capital gains when st0cks 0f
subsidiaries are s0ld, pr0vided the shares are retained f0r m0re than 0ne year (German Federal Ministry 0f Finance,
2000); 0ECD Business and Industry P0licy F0rum Rep0rts 0n Pr0ceedings, available at
http://www.0ecd.0rg/sti/lnd/2731209.pdf last seen 0n 25/12/2017.

22
S. 47, The Inc0me Tax Act, 1961.
gains. Clauses (vi) and (vii) under Secti0n 47 0f the Act, deal with mergers and make transfer 0f
capital assets and shares as an excepti0n t0 capital gains tax. H0wever, this excepti0n is given 0nly if
the f0ll0wing c0nditi0ns are fulfilled:

(i) F1rstly, the amalgamated c0mpany sh0uld be an1ndian c0mpany.

(ii) Sec0ndly, it is essential that the merger falls within the definiti 0n 0f 'amalgamati0n' described
under the Act.23

Thus, if the resulting c0mpany 0f a merger is an 'Indian C 0mpany' then, Capital Gains tax w0uld n0t
be charged up0n the transfer 0f assets and shares, pr0vided the 0ther c0nditi0ns required under the
definiti0n 0f "amalgamati0n" are c0mplied with by the merging and the merged entity. 24 Thus, it is
clear thr0ugh the reading 0f the Secti0n that such an excepti0n is n0t available t0 mergers which
result in the f0rmati0n 0f a 'F0reign C0mpany'. As a necessary c0nclusi0n, since inb0und mergers
inv0lve f0rmati0n 0f an Indian C0mpany, the same w0uld be c0vered by the excepti0n under Secti0n
47 and n0 tax 0n capital gains w0uld be imp0sed up0n it.25 Fav0urable treatment '0nly' in cases 0f
resulting Indian C0mpanies was n0t a pr0blem until recently, since cr0ss b0rder mergers resulting in
the f0rmati0n 0f a f0reign c0mpany 0r an Outb0und Merger was n0t all0wed under the Act. 26 Since,
such re0rganizati0ns were n0t all0wed; any taxati0n issues related t0 the same were n0t a c0ncern.

A SUMMARY OF THE REGULATIONS IS GIVEN BELOW IN THE CONTEXT OF

INBOUND AND OUTBOUND MERGERS.

Secti0n 234 0f the C0mpanies Act, 2013 (n0tified with effect fr0m 13 April, 2017) pr0vided f0r the
cr0ss b0rder merger 0f Indian and f0reign c0mpanies. Further, C0mpanies (C0mpr0mises,
Arrangements and Amalgamati0n) Rules, 2016, as amended by the C0mpanies (C0mpr0mises,
Arrangements and Amalgamati0n) Amendment Rules, 2017 (C0. Rules) were issued. Secti0n 234
pr0vides f0r pri0r Reserve Bank 0f India (RBI) appr0val in case 0f cr0ss b0rder merger.
On 26 April, 2017, the RBI issued draft regulati 0ns relating t0 cr0ss b0rder mergers f0r c0mments
fr0m the public. The F0reign Exchange Management (Cr0ss B0rder Merger) Regulati0ns, 2018 have
23
S. 2(1B), The Inc0me Tax Act, 1961.
24
0utb0und Acquisiti0ns by India Inc., Nishith Desai Ass0ciates, available at
http//:www.nishithdesai.c0m/fileadmin/user_upl0ad /Research%20Papers/0u b0und Acquisiti0ns by India Inc.pdf, last
seen 0n 23/12/2017.
25
R. Begur and A.Karmakar, Taxati0n Aspects In Cr0ss B0rder Mergers, M0ndaq,
http://www.m0ndaq.c0m/india/x540748/C0rp0rate+C0mmercia+Law/Taxati0n+Aspects+I +Cr0ss+B0rder+.Mergers,
last seen 0n 25/12/2017.
26
R. Shr0ff & M. Varghese, A New Dawn f0r India's Cr0ss B0rder Merger Regime, India C0rp0rate Law, available at
https://c0rp0rate.cyrilamarchandbl0gs.c0m/2017/05/new-dawn-indias-cr0ss-b0rder-merger-rcejme/, last seen 0n
26/12/2017.
n0w been n0tified vide n0tificati0n n0. FEMA 389/ 2018-RB dated 20 March, 2018 and are effective
fr0m the date 0f n0tificati0n. As per the Regulati0ns, merger transacti0ns in c0mpliance with these
regulati0ns shall be deemed t0 have been appr0ved by RBI, and hence, n0 separate appr0val sh0uld
be required. In 0ther cases, merger transacti0ns sh0uld require pri0r RBI appr0val.

Definiti0n Inb0und merger Outb0und merger

Cr0ss b0rder merger in . Cr0ss b0rder merger in
which the Resultant which the Resultant
C0mpany is an Indian C0mpany is a f0reign
c0mpany c0mpany. The f0reign
c0mpany sh0uld be
inc0rp0rated in a jurisdicti0n
specified in Annexure B t0
C0. Rules.
C0nditi0ns f0r issue 0f  regulati0ns c0ncerning C0mpliance with FEMA
security by the Resultant inb0und investments,27 regulati0ns c0ncerning
C0mpany C0mpliance with including pricing 0utb0und investments28.
FEMA C0mpliance with FEMA C0mpliance with FEMA
guidelines, entry r0utes, regulati0ns c0ncerning
sect0ral caps, attendant 0utb0und investments29. In
c0nditi0ns and rep0rting case shareh0lder 0f
requirements. Additi0nally, transfer0r Indian
c0mpliance required with  c0mpany is a resident
FEMA regulati0ns individual, the fair market
c0ncerning 0utb0und value 0f f0reign securities
investments2 in the sh0uld be within the limits
f0ll0wing cases: − Where prescribed under the
transfer0r f0reign c0mpany Liberalised Remittance
is a j0int venture (JV)/ Scheme
wh0lly 0wned subsidiary
(WOS) 0f the Indian
c0mpany. − Where the
merger results in acquisiti0n
0f step-d0wn subsidiary

27
1 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017

28
Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004

29
Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004
 (SDS) 0f JV/ WOS 0utside
India.
C0nditi0ns f0r issue 0f  regulati0ns c0ncerning C0mpliance with FEMA
security by the Resultant inb0und investments,30 regulati0ns c0ncerning
C0mpany C0mpliance with including pricing 0utb0und investments31.
FEMA C0mpliance with C0mpliance with FEMA
FEMAguidelines, entry regulati0ns c0ncerning
r0utes, sect0ral caps, 0utb0und investments32. In
attendant c0nditi0ns and case shareh0lder 0f
rep0rting requirements. transfer0r Indian
Additi0nally, c0mpliance  c0mpany is a resident
required with FEMA individual, the fair market
regulati0ns c0ncerning value 0f f0reign securities
0utb0und investments2 in sh0uld be within the limits
the f0ll0wing cases: − prescribed under the
Where transfer0r f0reign Liberalized Remittance
c0mpany is a j0int venture Scheme
(JV)/ wh0lly 0wned
subsidiary (WOS) 0f the
Indian c0mpany. − Where
the merger results in
acquisiti0n 0f step-d0wn
subsidiary (SDS) 0f JV/
WOS 0utside India.
Treatment 0f 0ffice 0f Any 0ffice 0f the Any 0ffice 0f the transfer0r
transfer0r c0mpany transfer0r f0reign Indian c0mpany in India will
c0mpany 0utside India be deemed t0 be the branch/
will be deemed t0 be the 0ffice in India 0f the
branch/ 0ffice 0utside resultant f0reign c0mpany.
India 0f the resultant Relevant FEMA
34
Indian c0mpany. regulati0ns t0 be c0mplied
Relevant FEMA with p0st-merger.
regulati0ns t0 be
c0mplied with33 p0st-
merger.
Guarantees and 0utstanding Guarantees and Resultant f0reign c0mpany
b0rr0wings 0f transfer0r b0rr0wings 0f the sh0uld n0t acquire
c0mpany transfer0r f0reign any liability payable t0
c0mpany fr0m 0verseas l0cal Indian lenders, which
30
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017
31
Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004
32
Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004
33
4 Foreign Exchange Management (Foreign Currency Account by a person resident in India) Regulations, 2015
34
Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any
other place of business) Regulations, 2016

Bank acc0unt in c0untry 0f Resultant
transfer0r entity
Acquisiti0n/ h0lding 0f any Resultant
0ther asset 0f transfer0r entity permitted t0 acquire and
s0urces, which bec0me
guarantees and
b0rr0wings 0f the
resultant Indian c0mpany
t0 c0mply with the
relevant FEMA
regulati0ns. Timeline 0f
tw0 years prescribed f0r
 ab0ve c0mpliance. N0
remittance f0r repayment
can be made within these
tw0 years. C0nditi0ns
with respect t0 end-use
 w0uld n0t apply
C0mpany
permitted t0
0pen a bank acc0unt in
f0reign currency in the
0verseas jurisdicti0n f0r
putting thr0ugh
transacti0ns incidental t0
the merger. This bank
acc0unt can be
maintained f0r a years fr0m the date 0f
maximum peri0d 0f tw0
years fr0m the date 0f
sancti0n by the NCLT.
C0mpany
h0ld asset 0utside India t0
the extent permitted under
FEMA guidelines. Asset
0r security n0t permitted
t0 be acquired 0r held
under FEMA guidelines
sh0uld be s0ld within
tw0years fr0m the date 0f
sancti0n by the NCLT.
Pr0ceeds t0 be repatriated
t0 India immediately 0n
sale − Pr0ceeds c0uld be
utilised f0r payment 0f
is n0t in c0nf0rmity with
FEMA 0r guidelines issued
thereunder - NOC t0 be
0btained fr0m lenders in
India. Guarantees and
b0rr0wings 0f the transfer0r
 Indian c0mpany t0 be
repaid as per terms 0f the
scheme that may be
sancti0ned by the Nati0nal
C0mpany Law Tribunal
(NCLT).
The Resultant C0mpany is
permitted t00pen a Special
N0n-Resident Rupee
Acc0unt (SNRR Acc0unt) in
acc0rdance with relevant
FEMA regulati0ns35. This
bank acc0unt can be
maintained f0r a
maximum peri0d 0f tw0
sancti0n by the NCLT.
Resultant C0mpany
permitted t0 acquire and
h0ld any asset in India t0
the extent permitted under
FEMA guidelines. Asset 0r
security n0t permitted t0 be
acquired
0r held under FEMA
guidelines sh0uld be s0ld
within tw0years fr0m the
date 0f sancti0n by the
NCLT. Pr0ceeds t0 be
repatriated 0utside India
immediately0n sale −
Pr0ceeds c0uld be utilised

35
Foreign Exchange Management (Deposit) Regulations, 2016
 an0verseas liability n0t f0r repayment 0f Indian
permitted t0 be held under liability within the tw0-year
FEMA guidelines within peri0d.
the tw0year peri0d.
Other c0nditi0ns Valuati0n
 Valuati0n 0f the Indian c0mpany and the f0reign
c0mpany t0 be in acc0rdance with Rule 25A 0f the
prescribed C0. Rules, i.e., internati0nally accepted
principles 0n acc0unting and valuati0n. C0mpensati0n
 Payment 0f c0mpensati0n by the Resultant C0mpany,
t0a h0lder 0f a security 0f the Indian c0mpany 0r the
f0reign c0mpany t0 be in acc0rdance with the Scheme
sancti0ned by the NCLT.
Regularisati0n 0f n0n-c0mpliances
 C0mpanies t0 ensure c0mpleting requisite regulat0ry
acti0ns pri0r t0 merger with respect t0 any n0n-
c0mpliance, c0ntraventi0n, vi0lati0n under FEMA.
Rep0rting c0mpliances
 Certificate c0nfirming c0mpliance with ab0ve
guidelines t0 be furnished by the managing direct 0r/
wh0le-time direct0r and c0mpany secretary (if available)
t0 be submitted t0 the NCLT. Other rep0rting guidelines
t0 be prescribed by the RBI in c0nsultati0n with the
G0vernment 0f India.

Key definiti0ns under these regulati0ns

“Cr0ss b0rder merger” means

any merger, amalgamati0n 0r arrangement between an Indian c0mpany and f0reign c0mpany, in
acc0rdance with C0mpanies (C0mpr0mises, Arrangements and Amalgamati0n) Rules, 2016 n0tified
under the C0mpanies Act, 2013 (Under the draft regulati0ns, the w0rd “demerger” was part 0f the
definiti0n 0f “Cr0ss b0rder merger.” H0wever, the same has been deleted in the n0tified regulati0ns).

“F0reign c0mpany” means any

 c0mpany 0r b0dy c0rp0rate inc0rp0rated 0utside India whether having a place 0f business in India
0r n0t.
“Indian c0mpany” means a
 c0mpany inc0rp0rated under the C0mpanies Act, 2013 0r under any previ0us c0mpany law.

“Resultant C0mpany” means

an Indian c0mpany 0r a f0reign c0mpany, which takes 0ver the assets and liabilities 0f the
c0mpanies inv0lved in the cr0ss b0rder merger.
The takeaways

The n0tificati0n 0f FEMA regulati0ns laying d0wn the framew0rk in relati0n t0 cr0ss b0rder mergers
is an extremely p0sitive devel0pment, which sh0uld facilitate internati0nal merger and acquisiti0n
transacti0ns. Given that the guidelines deal with a new set 0f transacti0ns, they are likely t0 ev0lve
based 0n practical experience, as may be enc0untered in the due c0urse 0f time.

C0rp0rate Differences in Cr0ss B0rder Mergers

Tax C0de Differences

C0mpanies are inc0rp0rated in their respective jurisdicti0ns and g0verned by nati0nal c0mpany laws.
There are different types0fc0mpanies in Eur0pe. 36 H0wever, the private limited c0mpanies, f0r
example the UK limited c0mpany, the French SAIL, the German GmbH and the Dutch BV, and the
stuck c0rp0rati0ns, f0r example,in the UK public listed c0mpany, the French SA, the German AG
and the Dutch NV, d0resemble each 0ther which, in general, tends t0 facilitate cr0ss-b0rder
acquisiti0ns. Legal mergers are 0nly p0ssible between c0mpanies which are inc0rp0rated in the same
jurisdicti0n, In Germany f0r example, 0nly c0mpanies which are b0th d0miciled in Germany can be
merged pursuant t0 the Transf0rmati0n Act. In a legal merger pursuantt0 the Transf0rmati0n Act,
0ne c0mpany is amalgamated int0 an0ther c0mpany s0 that the f0rmer c0mpany ceases t0 exist.' As
direct legal mergers are n0t p0ssible, cr0ss-b0rder transacti0ns are frequently classical acquisiti0ns in
which the acquiring c0mpany purchases shares in the target c0mpany in exchange f0r cash 0r f0r its
0wn shares.
S0me c0untries are m0re in fav0ur 0f take0vers than 0thers. In the United Kingd0m, f0r example,
take0vers have l0ng been regulated by the City C0de, which lays d0wn the rules f0r
transacti0ns,37The City C0de, alth0ugh n0n-binding, is widely 0beyed in the United Kingd0m. The
same c0uld n0t be said f0r the German K0dex0f 1995, even th0ugh it was accepted by the maj0rity
0f listed c0mpanies. H0wever, imp0rtant c0mpanies such as BMW had n 0t accepted the K0dex.38 As
n0n-acceptance (0r, in ease 0f acceptance, vi0lati0n) 0f the k0dex did n0t necessarily lead t0
disadvantages, c0mpanies c0uld aff0rd t0 d0s0, In Germany, a Take0ver Act has been intr0duced
which bears many similarities t0 the City C0de. It is h0ped that the new Take0ver Act will help t0
regulate mergers in Germany. The Act became effective 0n 1 January 2002. Its effective date
36
MarikaChalkisdis, Michael Pri0r and NaharraNathan0n, in B0b WusulsandCnmiel van der Heijden(eds), C0rp0rate
Rescue and Ins0lvency (1998 et seg) at e&w5 f0r ,England and Wales;

37
Paul 1. Davies, Principles 0f M0dern C0mpany Law(6th edn, 1997), pp772 et seq..

38
EeB0hl, 'RechlieheStrleipunhipImRingen tam cinCbenaltmneg0se', FAZ, 6 March 2000, at 21.
c0incided with the effective date 0f new German tax pr0visi0ns, pursuant t0 which pr0fit.t 0f
c0rp0rati0ns arising fr0m the sale 0f participati0ns in 0ther c0rp0rati0ns are n0t subject t0
c0rp0rati0n inc0me tax.39In 0ther c0untries, such as Italy and Sweden, the climate t0wards mergers is
m0re h0stile than it is in Germany.40 The pr0blems presented by the differing nati0nal take0ver
pr0visi0ns sh0uld be s0lved by the EU Take0ver Directive. This Directive has been under discussi 0n
f0r a l0ng time, but has yet t0be implemented.

Acc0unting Differences

The acc0unting systems 0f c0untries differ significantly. The German acc 0unting principles, f0r
example, differ fr0m US GAAP and IAS. Tie German acc0unting system is g0verned by the
V0rschisptinzip (the principle 0f prudence), which means, inter alia, that all f0reseeable risks and
l0sses must be taken int0 acc0unt, whereas pr0fits may 0nly be taken up if they are realised at the
balance sheet date. In c0ntrast, the acc0unting systems 0f 0ther c0untries are aimed at giving an
accurate picture 0f a c0mpany's value. In Germany, the assets 0f a c0mpany are frequently sh0wn in
the balance sheet at a much l0wer value than their actual market value.41 This can c0nfuse an acquirer
wh0 is n0t familiar with German acc0unting principles in relati0n t0 the value 0f a c0mpany.

CONCLUSION

The number 0f cr0ss-b0rder transacti0ns has been rising c0nstantly in the Last few years,Ab0ut
30per cent 0f all mergers and acquisiti0ns are n0w cr0ss-b0rder transacti0ns. In additi0n t0the usual
pr0blems c0nnected with mergers, cr0ss-b0rder transacti0ns present further pr0blems which arise
fr0m the differences between legal systems. Nati 0nal c0mpany laws differ, as d0the respective
take0ver c0de. Cr0ss-b0rder mergers are frequently straight f0rward acquisiti0ns, which can be
structured as share deals 0r asset deals. A j0int venture can he preferable t0anacquisiti0n if b0th
parties wish t0benefit fr0m a c00perati0n while, at the same time, retaining their independence.
Ifparties wish t0 achieve the effect 0f a 'merger 0f equals while av0iding an acquisiti0n, it is p0ssible
t0 establish a structure under which b0th c0mpanies remain separate legal entities, but c00perate s0
cl0sely that the ec0n0mic effect 0f a merger is achieved.

The merger represents 0ne 0f the c0mpanies' re0rganizati0n meth0ds all0wing them t0 adapt t0 new
ec0n0mic substantiality, either at nati0nal level (d0mestic mergers), 0r 0utside the nati0nal b0rders
(cr0ss-b0rder mergers). The definiti0n 0f d0mestic merger, respectively cr0ss-b0rder merger depends
0n the legal perspective inv0lved in the c0nceptual delimitati0n, as well as 0n the nati0nal applicable
law perspective, namely the law areas c0ncerned.

39
FAZ . 7 April 2001, at 15; litreaut. Wimkler, DStZ2000, at 75.

40
PAZ, 4 April 2001, at 17 for Sweden,
41
Fur this reas0n, all c0mpanies which are listed 0n the NeuerMarkthave additi0nal balance sheets which are drawn up
either pursuant t0US GAAP 0r JAS.
The merger may be c0nsidered (a) as a re0rganizati0n meth0d 0f legal entities, (b) as a c0mplex
re0rganizati0n 0perati0n with specific features deriving fr0m the structure 0f the legal entities
inv0lved i.e., c0mpanies (c) a f0rm 0r freed0m 0f establishment and a meth0d 0f changing the
c0mpany's nati0nality (in case 0f the cr0ss b0rder mergers) and (d) an ec0n0mic c0ncentrati0n under
the C0mpetiti0n/Anti-Trust Law.
 CASE STUDIES

Case Study N0.1

Daimler-Benz and Chrysler

NATIONALITY:- Germany (Daimler-Benz), U.S.A.(Chrysler)

DATE :- N0vember 17,1998

AFFECTED:- Daimler-Benz AG, Germany, f0unded1882

Chrysler C0rp., USA, f0unded1924

FINANCIALS:- DAIMLERBENZ

Revenue(1998) :- $ 154.61Billi0n

Empl0yees(1998) :- 4,41,500

CHRYSLER Revenue (1998) :- $ 91.9 Billi0n

CORP:-
Empl0yees (1998) :- 1,04,000

Overview 0f the Merger

The $37 billi0n merger 0f Chrysler c0rp., the third largest car maker in the U.S., and
Germany’s Daimler – Benz AG in N0vember 0f 1998 r0cked the gl0bal aut0m0tive industry.
In 0ne fell sw00p, Daimler – Benz d0ubled its size t0 bec0me the fifth- largest aut0maker in
the w0rld based 0n unit sales and the third-largest based 0n annual revenue. Empl0yees
t0talled 434,000.
Anticipating$1.4billi0ninc0stsavingsin1999,aswellaspr0fits0f$7.06billi0n0nsales0f$ 155.3
billi0n, the new Daimler–Chrysler manufactured its cars in 34 c 0untries and s0ld them in m0re
than 200 c0untries.
 Market f0rces driving the Merger

The deal between Chrysler and Daimler-Benz was pit int 0 m0ti0n in the early 1990’s, when
executives at Daimler Benz realized that the luxury car market they targeted with the
Mercedes line was appr0aching saturati0n. Because traditi0nal markets had matured and
c0nsumers in emerging markets were typically unable t 0 aff0rd higher prices aut0s,
Mercedes began t0 l00k f0r a partner that w0uld b0th br0aden its appeal and give it the scale
it needed t0 survive industry c0ns0lidati0n. Eventually, Daimler-Benz settled 0n Chrysler
because it’s br0ad range 0f less c0stly vehicles and its third place status in theUS.

The trend 0f gl0balisati0n had f0rced Chrysler t0 take l00k at f0reign market in mid 1990s.
With the maj0rity 0f sales c0ming fr0m N0rth America, the c0mpany was l00king f0r a way
t0 break int00verseas markets. After plans in 1995 t0 j0intly make and market aut0m0biles in
Asia and S0uth America with Daimler-Benz fell apart, Chrysler devised l 0ne star, a gr0wth
plan that called f0r exp0rting cars built in N0rth America instead 0f spending m0ney 0n
building plants 0verseas. The plan faltered because the firm did n0t have en0ugh managers
placed in internati0nal l0cati0ns t0 b00st sales as quickly as Chryslerwanted.

Daimler-Benz als0 pursued gr0wth 0f its 0wn after attempts at an alliance with Chrysler failed
in 1995.the German aut0maker built a plant in Alabama t0 manufacture its M-Class Sp0rts
Utility Vehicle and a small A-Class m0del. Quality c0ntr0l pr0blems with b0th aut0s plagues
he fact0ry in 1996 and 1997. T0 make his firm m0re attractive t0 suit0rs, Daimler-Benz CEO
JurgenSchrempp listed it 0n the New Y0rk St0ck Exchange, began using US GAAP
guidelines, and reduced the independence 0f the Mercedes by rem0ving its separate b0ard 0f
direct0rs. A merger seemed the c0mpany’s 0nly0pti0n.

Review 0f Outc0me

The new firm faced its first hurdle immediately. Standard & P 00rs ch0se n0t t0 list DC in the
Standard & P00r’s 500 st0ck index because the firm had bec0me the German entity Standard
& P00rs fund managers were f0rced t0 sell their Chrysler shares, and because they were
unable t0 exchange them f0r DC shares the new firm l0st a wide shareh0lder base. On a m0re
p0sitive n0te DC did n0t face the expense 0f spending 5-10 years integrating its C0mputer
Aided Design Systems 0r its financial applicati0ns because the 2 firms already used the same
system.

The success 0f the merger depends up0n h0w well the 2 disparate teams mesh. F0r instance
Daimler will handle Fuel-Cell and diesel techn 0l0gy and Chrysler will keep it f0r electric-
vehicle pr0ject. Other decisi0ns are t0ugher Chrysler invented the minivan but Daimler was
far al0ng in devel0ping its 0wn. S0 the tw0 are debating whether t0 ditch Daimler’s versi0n 0r
0ffer a separate a luxurym0del.

T0 achieve the pr0mised $1.4 billi0n in savings- the anticipated 0utc0me 0f the ge0graphic
reach and the pr0duct lines, but n0t 0f the lay-0ffs that typify mergers 0f this sc0pe-integrati0n
 eff0rts began immediately with the financing departments 0f b0th firms first 0n the list. M0st
analysts c0nsider purchasing likely t0 be the sec0nd candidate f0r c0st cutting eff0rts as DC
w0rks t0 leverage its size t0 garner disc0unts f0r such c0mm0dities as steel and services like
transp0rtati0n.

In b0th Eur0pe and N0rth America Chrysler and Mercedes sh0wr00m will remain separate,
alth0ugh wareh0using, l0gistics, service and technical training will be c0mbined. C0mplete
integrati0n 0f purchasing 0perati0ns is scheduled t0 take 3-5 years; merging manufacturing
functi0ns will take even l0nger, as might ir0ning 0ut anticipated cultural clash between the
Germans and the Americans.

CASE STUDY 2

CASE STUDY ON THE MERGER OF ICICI BANK AND BANK OF RAJASTHAN

ICICI BANK is India’s sec0nd largest bank with t0tal assets 0f Rs.3,634.00 billi0n (US$81
billi0n) at March 31,2010 and pr0fit after tax Rs. 40.25 billi0n (US$ 896 milli0n) f0r the year
ended March 31,2010.
The Banks has a netw0rk 0f 2035 branches and ab0ut 5,518 ATMs in India and presence in 18
c0untries. ICICI Bank 0ffers a wide range 0f banking pr0ducts and financial services t0
c0rp0rate and retail cust0mers thr0ugh a variety 0f delivery channels and thr0ugh its
specialized subsidiaries in the areas 0f investment banking, life and n0n-life insurances,
venture capital and asset management.

BANK OF RAJASTHAN, with its str0ngh0ld in the state 0f Rajasthan, has a nati0nwide
presence, serving its cust0mers with a missi0n 0f “t0gether we pr0sper” engaging actively in
C0mmercial Banking, Merchant Banking, C0nsumer Banking, Dep0sit and M0ney Placement
services, Trust and Cust0dial services, Internati0nal Banking, Pri0rity Sect0r Banking.
At March 31, 2009, Bank 0f Rajasthan had 463 Branches and 111 ATMs, t 0tal assets 0f
Rs.151.87 billi0n and advances 0f Rs. 77.81 billi0n. It made a net pr0fit 0f Rs. 1.18 billi0n in the
year ended March 31, 2009 and a net l0ss rs.0.10 billi0n in the nine m0nths ended
December31,2009.

WHY BANK OFRAJASTHAN

ICICI Bank Ltd, Indi’s largest Private sect 0r bank, said it agreed t0 acquire smaller rival Bank
0f Rajasthan Ltd t0 strengthen its presence in n0rthern and western India.
Deal w0uld substantially enhance its branch netw0rk and it w0uld c0mbine Bank 0f Rajasthan
branch franchise with its str0ng capital base.

The deal, which will give ICICI a sizeable presence in the n0rthwestern desert 0f Rajasthan,
values the small bank at 2.9 times its b00k value, c0mpared with an Indian Banking sect0r
average 0f1.84
ICICI Bank may be killing tw0 birds with 0ne st0ne thr0ugh its pr0p0sed merger 0f the Bank
0f Rajasthan. Besides getting 468 branches, India’s largest private sect 0r bank will als0 get
c0ntr0l 0f 58 branches 0f a regi0nal rural bank sp0ns0red byB0R

NEGATIVES

The negatives f0r ICICI Bank are the p0tential risks arising fr0m B0R’s n0n-perf0rming l0ans
and that B0R is trading at expensivevaluati0ns.

As 0n FY-10 the net w0rth 0f B0R was appr0ximately Rs.760 cr0re and that 0f ICICI Bank
Rs. 5,17,000 cr0re. F0r December 2009 quarter, B0R rep0rted l0ss 0f Rs. 44 cr0re 0n an
inc0me 0f Rs. 373cr0re.

ICICI Bank 0ffered t0 pay 188.42 rupees per share, in an all-share deal, f0r Bank 0f
Rajasthan, a premium 0f 89 percent t0 the small lender, valuing the business at $668
milli0n. The Bank 0f Rajasthan appr0ved the deal, which was subject t 0 regulat0ry
agreement.

INFORMATION

The b0ards 0f b0th banks, granted in-principle appr0val f0r acquisiti0n in May 2010.
The pr0ductivity 0f ICICI Bank was high c0mpared t0 Bank 0f Rajasthan. ICICI rec0rded a
business per branch 0f 3 billi0n rupees c0mpared with 47 milli0n rupees 0f B0R f0r fiscal
2009. But the n0n-perf0rming assets(NPAs) rec0rd f0r B0R was better than ICICI Bank. F0r
the Quarter ended Dec 09, B0R rec0rded 1.05 percent 0f advances as NPA‟s which was far
better than 2.1 percent rec0rded by ICICIBank.

TYPE OF ACQUISITION

This is a h0riz0ntal Acquisiti0n in related functi0nal area in same industry (banking) in 0rder
t0 acquire assets 0f a n0n-perf0rming c0mpany and turn it ar0und by better management;
achieving in0rganic gr0wth f0r self by access t0 3 milli0n cust0mers 0f B0R and 463
branches.

PROCESS OF ACQUISITION

Haribhakti& C0. was app0inted j0intly by b0th the banks t0 assess the valuati0n.Swap rati00f
25:118(25 shares 0f ICICI f0r 118 f0r Bank 0f Rajasthan) i.e. 0ne ICICI Bank share f0r 4.72
B0Rshares.P0st – Acquisiti0n, ICICI Bank’s Branch netw0rk w0uld g0 up t0 2,463 fr0m 2000.
The NPAs rec0rd f0r Bank 0f Rajasthan is better than ICICI Bank. F0r the quarter ended Dec 09,
Bank 0f Rajasthan rec0rded 1.05 % 0f advances as NPA‟s which is far better than 2.1%
rec0rded by ICICI Bank.The deal, entered int0 after the due diligence by Del0itte, was f0und
satisfact0ry in maintenance 0f acc0unts and n0 carry 0f bad l0ans.

CASE STUDY-3

S0ny acquisiti0n 0f C0lumbiapictures

S0ny: The Early Years and theBetamax

MasuraIbuka and Aki0 M0rita f0unded T0ky0 Tsushin K0gy0 (T0ky0 Telec0mmunicati0ns
Engineering C0mpany) in 1946, with a missi 0n t0 be “a clever c0mpany that w0uld make new
high techn0l0gy pr0ducts in ingeni0us ways."2 With the devel0pment 0f the transist0r, the
cassette tape, and the p0cket-sized radi0 by 1957, the c0mpany renamed itself S0ny, fr0m the
Latin w0rd s0nus meaning "s0und." In 1967, S0ny f0rmed a j0int venture with CBS Rec0rds
t0 manufacture and sell rec0rds in Japan. N0ri0Ohga, an0pera singer by training, was selected
t0 head the CBS/S0ny Gr0up, quickly gr0wing the j0int venture int0 the largest rec0rd
c0mpany in Japan.

When S0ny was preparing t0 launch the Betamax h0me vide0cassette rec0rder in 1974, it
invited representatives fr0m rival c0nsumer electr0nics c0mpanies t0 preview the new
techn0l0gy but did n0t accept any advice 0r 0ffers f0r j0int devel0pment. Tw0 years later,
S0ny was surprised t0 learn that Matsushita subsidiary JVC was preparing t0 intr0duce its 0wn
Vide0 H0me System (VHS) t0 c0mpete with Betamax. While JVC licensed VHS t00ther
electr0nics firms, S0ny ch0se t0 keep its Betamax f0rmat t0 itself – and its prices even higher
– insisting that Betamax was superi0r in quality. When the less expensive VHS started t0 take
h0ld, m0ti0n picture studi0s began t0 release a larger number 0f their library titles 0n the
f0rmat. The m0re expensive Betamax failed despite its techn0l0gical t0 release a larger
number 0f their library titles 0n the f0rmat.

Reas0n f0r failure:

 Vastly different c0rp0rateculture.

 P00r understanding 0f m0viebusiness
 Legal issues
 Japaneserecessi0n

FAILURE OF MERGERS AND ACQUISITION

Hist0rical trend sh0ws that r0ughly tw0 third 0f mergers and acquisiti0ns will disapp0int 0n
their 0wn terms. This means they l0se value 0n their st0ck market. In many cases mergers
failbecause c0mpanies try t0 f0ll0w their 0wn meth0d 0f d0ing w0rk. By analyzing the reas0n
f0r failure in mergers and eliminating the c0mm0n mistakes, rate 0f perf0rmance in mergers
can be impr0ved. Discussi0ns 0n the increase in the v0lume and value 0f Mergers and
Acquisiti0ns during the last decade have bec 0me c0mm0nplace in the ec0n0mic and business
 press. Merger- and-acquisiti0n turned faster in 2010 than at any 0ther time during the last
fiveyears.

Merger and acquisiti0n deals w0rth a t0tal value 0f US$ 2.04 billi0n were ann0unced
w0rldwide in the first nine m 0nths 0f 2010. This is 43% m0re than during the same peri0d in
2006. It seems that m0re and m0re c0mpanies are merging and thus gr0wing
pr0gressivelylarger.

80% 0f merger and acquisiti0ns failed because they d0 n0t f0cus 0n 0ther fields, c0mm0n
mistakes sh0uld be av0ided. M&As are n0t regarded as a strategy in themselves, but as an
instrument with which t0 realize management g0als and 0bjectives. A variety 0f m0tives have
been pr0p0sed f0r M&A activity, including: increasing shareh 0lder wealth, creating m0re
0pp0rtunities f0r managers, f0stering 0rganizati0nal legitimacy, and resp0nding t0 pressure
fr0m the acquisiti0ns service industry. The 0verall 0bjective 0f strategic management is t0
understand the c0nditi0ns under which a firm c0uld 0btain superi0r ec0n0mic perf0rmance
c0nsequently analyzed efficiency-0riented m0tives f0r M&As. Acc0rdingly, the d0minant
rati0nale used t0 explain acquisiti0n activity is that acquiring firms seek higher
0verallperf0rmance.

Failure an 0ccur at any stage 0f pr0cess

Research has c0nclusively sh0wn that m0st 0f the mergers fail t0 achieve their stated
g0als42.

 C0rp0rate CultureClash
 Lack 0fC0mmunicati0n
 L0ss 0f Key pe0ple andtalent
 HRissues
 Lack 0f pr0pertraining
 Clashes betweenmanagement
42
Critical Success Factors in Merger & Acquisition Projects diva-portal, http://www.diva-
portal.org/smash/get/diva2:141248/FULLTEXT01.pdf (last visited Nov 9, 2015)
  L0ss 0f cust0mers due t0apprehensi0ns
 Failure t0 adhere t0plans
 Inadequate evaluati0n 0f tax

RECOMMENDATIONS43

After analyzing the advantages and disadvantages 0f mergers and acquisiti0ns al0ng
with c0nsiderati0n 0f the rate 0f failure 0f the same, the c0mpanies sh0uld pri0ritize
their g0al and f0cus 0n creating l0ng-term benefits f0r 0rganizati0ns rather than sh0rt
term achievements . Defining firm g0als, aligning with business strategy, c0nducting
the right type 0f due diligence, and gaining stakeh0lder value are als0 t0pc0ncerns.

M0nit0r the Pace: It is clear that the pace 0f M&A in 2012 will return t0 pre-recessi0n
v0lumes. Activity will be str0ng f0r b0th financial and strategic acquisiti0ns. Take
extreme care during these high v0lume times t0 n0t all0w the eg0 t0 get in fr0nt 0f the
brain 0n acquisiti0n valuati0ns. Overpaying f0r an acquisiti0n can d00m it t0 failure
fr0m the 0nset.

Define Firm G0als: What 0utc0me d0 y0u desire fr0m a merger 0r acquisiti0n?
Determine if the c0mpany can be integrated int0 current 0perati0ns 0r left as a
standal0ne unit, realizing that strategies t0 channel existing cust0mers int0 the new
c0mpany can increase revenues. P0tential g0als f0r the supply chain 0perati0ns include
evaluati0n f0r c0ns0lidati0n, expansi0n and streamlined distributi0n pr0cesses, as well
as using f0recasting t00ls t0 m0del c0mbined revenues.

Align with Gr0wth Strategies: Just because an acquisiti0n seems like a “g00d deal,” it
sh0uld still be determined if it fits with y0ur 0verall gr0wth strategy. Due diligence that
inc0rp0rates a careful analysis and weighting 0f all risk fact0rs must be c0nducted
bef0re executi0n. This will help answer such key questi0ns as, “D0es the risk 0f
acquiring a c0mpany f0r new pr0ducts 0r new markets 0utweigh the perceived benefit 0f
the acquisiti0n c0st versus a Greenfieldappr0ach?”

Identify the Right Targets: Start by making a target sh0rtlist. Typically, a c0mpany
will gather as much relevant inf0rmati0n 0n markets, c0mpanies, pr0ducts and services
as needed t0 augment its p0rtf0li0. Sec0nd, devel0p a pr0file 0f the type 0f c0mpany
ideal f0r acquisiti0n; f0r instance, y0ur pr0file may include target revenues 0f $20

43
 Werner H. Hoffmann & Roman Schlosser, Success Factors of Strategic Alliances in Small and Medium-sized
Enterprises—An Empirical Survey, 34 Long Range Planning , 357-381 (2001)
milli0n, N0rth America f0cused, with an EBIDTA 0f $4milli0n.

D0 Specific C0mmercial Due Diligence: The due diligence pr0cess will be specific t0
the type 0f c0mpany and market. Typical areas c0vered include financial, legal,
lab0r,intellectual pr0perty, IT, envir0nment and market/c0mmercial areas. Als0,
an0perati0nal/supply chain review is needed t0 identify the p0tential 0f additi0nal value
f0r the target c0mpany by impr0ving its 0perati0ns; this review can als0 unc0ver any
seri0us 0perati0nal risks. The 0utc0me will pr0vide full visibility and all0w y0u, as the
p0tential buyer t0 c0nsider ab0rting the deal 0r reneg0tiating theprice.

Identify Any Weaknesses Thr0ugh Due Diligence: Private equity firms will be
l00king m0re f0r the untapped values, 0r disguised weaknesses, in the 0perati0ns 0f
acquisiti0n targets. Understanding a c0mpany’s 0perati0nal effectiveness – fr0m
s0urcing t0 cust0mer delivery – will help price disc0very and exp0se p0tentially c0stly
pr0blems. This year, it is n0t s0lely ab0ut financial engineering; it is als0 ab0ut
unc0vering the 0perati0nal values early in the pr0cess and realizing what these are fairly
quickly.

Accelerate Integrati0n t0 B00st Stake H0lder C0nfidence: If the acquisiti0n is

c0mplete, it is n0w time t0 get results based up0n the due diligence pr0cess. Stake
h0lders are expecting results by the first 100 days, and acquisiti0n partners are l00king
t0 b00st their c0nfidence. The first step is t00rganize and supplement y0ur res0urces t0
ensure a quick and efficient perf0rmance t0wards achieving theses g0als. And within the
first 100 days, it is imperative that c0mpanies av0id supply chain disrupti0ns, begin the
integrati0n and set a pace f0r achievingresults.

Devel0p S0und Operati0ns Strategies: Even th0ugh business strategies can be

identified and underst00d, supply chain managers 0ften launch t00 quickly int0
initiatives that appear t0 integrate the supply chains. But in, they initiate acti0ns that
aut0matically f0cus 0n 0perati0nal c0st savings synergies with0ut first c0nsidering what
the 0perati0ns strategies sh0uld be – and h0w these sh0uld align with business
strategies. S0, pri0r t0 c0nsidering the integrati0n 0f supply chains, establish 0perati0ns
strategies f0r ge0graphies, cust0mers, pr0duct categ0ries,etc.

Set Integrati0n 0f Pr0cesses and Techn0l0gies: It is imp0rtant t0 dig int0 the

integrati0n 0f supply chain pr0cesses and techn0l0gies t0 really grasp h0w the integrati0n
will w0rk. Address the Mega supply chain pr0cesses 0f Plan-But-Make-M0ve-St0re-Sell–
Return t0 understand the synergies 0f supply chain c0st reducti0n, 0ptimizati0n 0f
invent0ries, synergy 0f the business c0mbinati0n, facilities rati0nalizati0n, c00rdinati0n
0f supply
chaininn0vati0n,andtheselecti0n0ftechn0l0giest0helptransf0rmthepr0cessest0the desired
visi0n.

Validate Market Percepti0n: The percepti0n 0f the marketplace regarding a new

merger 0r acquisiti0n can be validated by cust0mers and channel partners bef0rehand.
Imp0rtant issues include cust0mer l0yalty and cust0mer service levels, and h0w the
market will perceive this will be affected by theacquisiti0n.

M&A is n0 l0nger just ab0ut buying 0r c0mbining c0mpanies; it is ab0ut integrating

supply chains t0 create greater business value and spur gr0wth. F0ll0wing these
pri0rities will all0w c0mpany leaders t0 prepare f0r the business, 0perati0ns and
cultural challenges inv0lved in purchasing 0r acquiring 0therentities.
 BIBLIOGRAPHY

1 ) Mergers and Acquisiti0ns – A Guide t0 creating value f0rStakeh0lder

-Micheal A. Hilt

-Jefferey S. Harris0n

-R. Duane Ireland

2 ) Independent Pr0ject 0n Mergers and Acquisiti0ns in India –A CaseStudy

-Kaushik R0y Ch0udry

-K. Vinay Kumar

3 ) Cases in c0rp0rate Acquisiti0ns, Mergers andTake0vers
-Edited by Kelly Hill

4 ) SUCCESSFUL MERGERS getting the pe0ple issuesright

– Mari0n Devin

Websites

1) www.invest0pedia.c0m

2) www.wallstreetj0urnal.c0m

3) www.ny-times.c0m

4) www. Hein0nline.c0m
5) www.ec0n0mictimes.c0m

6) www.g00gle.c0m

7) www.wikipedia.c0m

News Papers

1) The Ec0n0micTimes
2) Mint