AMALGAMATIONS, MERGERS, ACQUISITIONS AND RECONSTRUCTION

AMALGAMATIONS, MERGERS, ACQUISITIONS AND RECONSTRUCTION UNDER COMPANIES ACT 2013

• The Companies Act, 2013 contains provisions relating to various methods of reorganization of companies under Sections 230 to 240 of the Act. i.e., Compromise, Arrangements, Reconstruction, Amalgamation & Mergers.
• The Companies Act, 2013 contains the provision relating to various methods of reorganization of companies under Section 230 – 240 of the Act. Two main reasons to undergo amalgamation, acquisition and reconstruction is

1. Strategic goal of survival in the market.
2. To achieve business goals.

MERGER UNDER I.T. Act, 1961 SECTION 2(2A), SECTION 234 OF COMPANY ACT 2013

1. Merger is a combination of two or more companies to form one new company.
2. In the process of merger both companies surrender their stock and issue new stock under the name of a new company, the combination of two companies also involves transfer of ownership.
3. In the process of merger the assets and liabilities of all the merging firms are vested into one form.
4. Mergers are of two types – Friendly and Hostile.
5. Mergers take place in two ways – ABSORPTION (takeover) & CONSOLIDATION

AB- Taker over of Myntra by Flipkart and Hutch by Vodafone.
CO- Hindustan Companies limited, Hindustan Instruments Ltd., Indian Software, Indian Reprographics consolidated into entirely new company HCL.

AMALGAMATION Under SECTION 391-394(A) of COMPANIES Act, 2013

• When one company takes over another company and clearly establishes itself as a new owner of the another company such purchase is called as amalgamation/acquisition.
• The new company comes into existence having all the property, rights and powers and subject to all the duties and obligations, of both the constituent companies.
• Hero + Honda = Hero-Honda. (Now De-merged)
• Maruti Motors (India) and Suzuki (Japan) were amalgamated to form Maruti Suzuki. But the original entity i.e Maruti still remains existent, Amalgamation can take place to achieve/ complete a particular project too.
• Size of acquiring company is bigger than the acquired company.

MERGERS AND AMALGAMATIONS

• Merger gives rise to a new entity and a totally completely new company is formed under merger.
• The merger takes place willingly.
• The controlling stake under merger is always mutually agreed and discussed between two parties.
• Merger happens when two companies or more companies who have a similar line of business operations decide to merge into each other in order to reduce competition, gain collective profits and to start a new service line.
• Under Amalgamation the acquiring company retains its total identity while the company which is being acquired is dissolved and cease to exist.
• The controlling stake by the company is always with the acquirer and the target company is a minority shareholder in it.
• Amalgamations usually happens when a larger entity of the business having bigger operations in the market acquires smaller companies with much less revenue and operations.

RECONSTRUCTION SECTION 232

• Is an exercise of restating assets and liabilities by company whose financial position as reflected by its balance sheet is not healthy but the future of the company seems promising.
• Types of Reconstruction- INTERNAL and EXTERNAL
• A] INTERNAL RECONSTRUCTION in case of internal construction the share capital of the company is altered some debts are waived off, the non-performing assets and the liabilities are reduced and the balance sheet of the company is reframed. There is no external change in the company. E.g Yes Bank
• B] EXTERNAL RECONSTRUCTION means winding of an existing company and registering itself into a new company by issuing new share and reframing new share capital.

ACQUISITION UNDER  SEC. 394(2)

• Acquisition is corporate action in which a company buys more, if not all, of another firms ownership-stakes to resume control of it.
• An acquisition occurs when a buying company obtains more than 50% ownership in a target company and target company allows the acquiring company to make decisions regarding the newly acquired assets and liabilities without the approval of the target companies share holders.
• Acquisition is less expensive than merger and the acquirer do not need to raise high capital as in case of mergers and amalgamation.
• Acquisition is faster and easier transaction and the acquirer does not experience the dilution of ownership.

• Application to the Tribunal – Sec. 230 Order of Tribunal to convene meeting of Creditors and Members Sec. 232
• Notice of meeting and its contents
• NCLT’s sanction.

• Approval of scheme by holders of three fourths in value of the shares in the meeting.
• The Tribunal, after satisfying itself that the procedure specified in section 232 has been complied with, may, by order, sanction the compromise or arrangement for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies or for transfer of undertaking.