Dr.

Dayananda Murthy C P
 Merger - Dictionary
Amalgamate - Blend - Combine - Come
together
Cause to lose character & identity in
Merger means - Fusion / Absorption of one Co. by Co
another X
Latter retaining its own name & identity &
Acquiring assets, liabilities, franchises & powers of
former, &
Absorbed Co. ceasing to exist as separate entity.

Co, X Com
C Z
r Co. Y
e Merge
a Co Co
Co.X
t Y Z
e Dr. Dayananda Murthy C P
 Illustration
Co. A
Co. A

Co. B
Liquidation

Liquidation

Dr. Dayananda Murthy C P

 Whenever a greater & a less one coincide & meet in
one & the same person,
Whether any middle estate - the lesser immediately
annihilated / in law phrase is said to be merged
i.e. Sunk / drowned in the greater

Merger is Corpus Juris Secundum

an absorption of a thing of lesser
importance by a greater,
Whereby the lesser ceases to exist, but the greater is not
increased & an absorption / swallowing up so as to
involve a loss of identity & individuality
Merger is the absorption / extinguishment of one estate
depending upon the intention of the parties.
Dr. Dayananda Murthy C P
 Merger/ Amalgamation
A state of things under which either
Two Co.s are so joined as to form a 3rd
entity/
One is absorbed into / blended with
another.
Somayajulu v Hope Prudhamme & Co 1963
ComLJ 61 (DB) AP; (1963) 2 Andh WR 112
Former loses its entity & is dissolved
Without WU ?.
S..K Gupta v K.P. Jain, AIR 1979 SC 734

Dr. Dayananda Murthy

CP
In re, Walker Settlements, 1935 Ch. 567

XYZ Co.
PQR CO.

XYZ Co.
Merged

PQR CO.

Dr. Dayananda Murthy C

P
 In re, Walker Settlements

PQR Co.
XYZ Co.
XYZ Co.

Merged ABC Co.

PQR CO.

Dr. Dayananda Murthy C

P
 Chapter XV
Compromises, Arrangements And Amalgamations SS 230 - 240 (390-394A)

A compromise / arrangement may be

proposed:-
Between a Co. & its creditors / any class of
them;

Dr. Dayananda Murthy C P

Between a Co. & its members / any class of
them.
Any form of internal reorganisation of the
Co. / its affairs,
Any schemes for the merger of two / more
Cos /
Any schemes for the division of one Co. into
two / more Cos
 Sec. 232 Explanation
(i) In a scheme involving a merger -
Where U/T/Scheme the undertaking, property &
liabilities of one / more Cos, including the Co. in
respect of which the compromise / arrangement is
proposed,
Are to be transferred to another existing Co., it is a
merger by absorption /
Where the undertaking, property & liabilities of two /
more Cos, including the Co. in respect of which the
compromise / arrangement is proposed
Are to be transferred to a new Co., whether / not a
PLC, it is a merger by formation of a new Co.;
 Sec. 232 Explanation
(ii) References to merging Cos are
In relation to a merger by absorption To
Transferor & Transferee Cos, &
In relation to a merger by formation of a new
Co. - To the Transferor Cos;
 Merger and/or Amalgamation?

Merger is restricted to a case

Amalgamation is an arrangement

Co. which is merged - loses its identity ?

Assets & liabilities of two / more Co.s become vested in
another Co. (which may / may not be one of the original
Co.) &

Which would have as its SHs substantially all

SHs of Amalgamating Co.
Dr. Dayananda Murthy C P
 Sec. 2(1B) Income Tax Act, 1961
Property of - Amalgamating Co. / Cos immediately
before - amalgamation becomes property of -
Amalgamated Co by virtue of the amalgamation
Liabilities of - Amalgamating Co. becomes the liabilities
of Amalgamated Co.

SHs holding 3/4th in value in - Amalgamating Co.

becomes - SHs of - Amalgamated Co.
Otherwise than as a result of the acquisition of the
property of one Co. by another Co. pursuant to the
purchase of such property by the other Co. /

As a result of the distribution of such property to other

Co. after WU of 1st mentioned Co.
Dr. Dayananda Murthy C P
 Saraswati Industrial Syndicate Ltd. v CIT
AIR 1991 SC 70
In amalgamation two / more Cos are
fused into one by merger / by taking
over by another
When two Cos are merged & are so
joined as to form a 3rd Co. /
One is absorbed into one / blended
with another
Amalgamating Co. loses its identity.

Dr. Dayananda Murthy C P

 Saraswati Industrial Syndicate Ltd. v Cit, Haryana, H.P. &
Delhi, AIR 1991 SC 70
The true effect & character of - amalgamation
largely depends on - Terms & Scheme of Merger
but there can be any doubt that when 2 Cos
amalgamate & merge into one - Transferor Co.
loses its entity as it ceases to have its business.
However, their respective rights / liabilities are
determined U/T scheme of amalgamation but
the corporate entity of the transferor Co. ceases
to exist with effect from the date - The
amalgamation is made effective.
Dr. Dayananda Murthy C P
 Accounting Standard AS-14 notified under
Cos (Accounting Standards) Rules, 2006

Amalgamation pursuant to the provisions of the

CA, 1956 / any other statute which may be
applicable to Cos. - 2 methods of amalgamation
are contemplated:
a) Amalgamation in the nature of merger
b) Amalgamation in the nature of purchase
Amalgamation by purchase in which one Cos
assets & liabilities are taken over by another & a
lump sum is paid by the latter to the former as
consideration is within the purview of SS. 391 &
394, CA. (SS 230-240, 2013)
Dr. Dayananda Murthy C P
Buyout agreement - Known as a merger
when both owners mutually decide to
combine their business in the best interest
of their firms.
But when the agreement is hostile / when
the target Co. is unwilling to be bought, it
is considered as an acquisition.

Dr. Dayananda Murthy C P

 Kinds of Merger
Horizontal Merger/Annexing Merger
Engaged in the same line of business i.e. Co.
Manufacturing, Producing Rendering or
Engaged in same kind of products / services
Jet Air Sahara
TOMCO HLL
Lipton India & Brooke bond

Dr. Dayananda Murthy C P

 Vertical Merger / streaming
Co. engaged in
Different stages of productions in an industry
being complementary to each other.
FLAG Telecom group amalgamation with Reliance
Gateway WOS of Reliance Infocomm -

Up Down
Stream Stream
Merger Merger

Distributing Co. Manufacturer Co.

Mergers with Merger with
Manufacturer co. Distributor (e.g. RPL-RIL)
Dr. Dayananda Murthy C P
 Conglomerate / Diagonal Merger
Merger between two completely different
business
E.g. Steel Co. - Cotton mill; Shoes - Soft drink
Brings stability of income & profits at adverse
fluctuations arising out of trade cycles.
Mature Cos with poor prospects for growth
may diversify through this.
L&T & Voltas Ltd.
Warren Buffets - Berkshire Hathaway
GE - Jet engines - power generation -financial services
plastic - medical imaging news & information
Honeywell, ITC, WIPRO

Dr. Dayananda Murthy C P

 Mixed Conglomerate Merger
Involves horizontal & vertical relationships
Two Co.s producing - Same product as the
acquirer
But selling it in a different geographical market
- Not a horizontal merger (Merging Co.s - Not
competitors)

Delhi
Delhi
Mumbai Product
Delhi A
Product A Delhi
Product A
Dr. Dayananda Murthy C P
 Upstream & Down
Stream Merger

Parent co.
With
Sub. Co.

Down
Stream
Up Merger
stream Sub. Co. with
Merger Parent Co.

Dr. Dayananda Murthy C P

 Product Extension / Concentric Merger
Products of the acquired co. are complementary
to those of the acquiring co. &
May be produced with similar facilities
marketed through the same channels &
advertised by the same media

Dr. Dayananda Murthy C P

 Triangular / Forward-T-Merger

Holding Co. X

Subsidiary
Co. Y

Shareholding in
Target Target Co. Holding Co.
Co. Z Merges

Dr. Dayananda Murthy C P

Reverse Triangular Merger

Subsidiary
Co. Y Holding Co. X

Mergers
with
Target Co

Target
Holding Co. Acquires
Co. Z Shareholding in Target
Co.
Dr. Dayananda Murthy C P
 Amalgamation is a blending of two / more existing
undertakings into one undertaking
SHs of each blending Co. becoming substantially the
SHs in the Co. which is to carry on the blended
undertakings.
Amalgamation may be
Either by the transfer of two / more undertakings to
a new Co., /
By the transfer of one / more undertakings to an
existing Co.
Strictly, amalgamation does not, it seems, cover the mere
acquisition by a Co. of SC of other Cos which remain in
existence & continue their undertakings, but the context in
which the term is used may show that it is intended to include
such an acquisition. Dr. Dayananda Murthy C P
 Merger
Denotes a statutory combination of two / more
Cos by the transfer of the properties to one
surviving Co.
Merger means an amalgamation between Cos
in which either the members of the merging
Cos exchange their shares for shares in a new
Co. / the members of some of the merging Cos
exchange their shares for shares in another
merging Co.

Dr. Dayananda Murthy C P