Mergers Steps

7/29/2019 Mergers Steps

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MERGER: AN INTRODUCTION

In business or economics, a merger is a combination of two or more

companies into one larger company, which might or might not be any of the existing companies.

However, there is no formal definition of ‘Merger’ and ‘Amalgamation’ in

any of the Act laid down by the parliament. The phrase Mergers and

amalgamations (abbreviated M&A) refers to the aspect of corporate

strategy, corporate finance and management dealing with the combining

of two or more different companies, which can aid, finance, or synergize,to avail the predetermined purpose.

The word amalgamation or merger has not been defined in the

Companies Act, 1956. However Section 2(1B) of the Income-Tax Act,

1961 defines amalgamation /merger as follows:

Amalgamation in relation to companies, mean the merger of one ormore companies with another company or the merger of two or more

companies to form one company or companies which so merge being

referred to as amalgamating company and the company with which they

merge or which is formed as results of the merger, as the amalgamated

company, in such manner that:

All the properties of the amalgamating company or companies

immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation;

All the liabilities of the amalgamating company or companies

immediately before the amalgamation becomes the liabilities of

the amalgamated company by virtue of the amalgamation;

Shareholders holding less than three- fourth in value of the

shares in the amalgamating company or the companies (other

than shares already held therein immediately before theamalgamation by or by a nominee for, the amalgamated

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company or its subsidiary) become shareholders of the

amalgamated company by virtue of the amalgamation.

RATIONALE OF MERGERS

The rationale behind the merger strategy can be highlighted with the

help of the following points:

Synergistic operational advantages

Economies of Scale (scale effect)

Benefits of integration

Tax and cost advantages

Diversification

Financial constraints for expansion

Reduction in legal and professional expenses.

Strengthening financial strength

Increased market opportunities

Development of a cohesive strategic approach

Reduction in production expenses. Reduction in selling expenses.

Sustaining growth

Survival

Other structural reasons

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CLASSIFICATION S OF MERGERS

Mergers can be classified into the following types:

• Horizontal Mergers take place where the two merging

companies produce similar product in the same industry.

• Vertical Mergers occur when the two firms, each working at

different stages in the same good, combine.

• Co-generic mergers occur where two merging firms are in the

same general industry, but they have no mutual buyer/customer

or supplier relationship, such as a merger between a bank and a

leasing company.

• Conglomerate mergers occur when the two firms operate in

different industries.

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ACCOUNTING ASPECT S OF MERGERS

The above-mentioned classifications of merger fall into the following two

broad categories, from the valuation point of view in a merger process:

Amalgamation in nature of merger

Amalgamation in nature of purchase

The brief discussion of above is given below:

• Amalgamation in the nature of Merger – This is an

amalgamation where all the assets and liabilities of the Transferor

Company(s) become, after amalgamation, the assets and

liabilities of the Transferee Company. There takes place genuine

pooling not merely of the assets and liabilities of the

amalgamating companies but also of the shareholders’ interests

and of the businesses of these companies. The business of the

Transferor Company(s) is intended to be carried on by the

Transferee Company, after the amalgamation. The accounting

treatment of such amalgamation should ensure that the resultant

figures of assets, liabilities, capital and reserves more or less

represent the sum of the relevant figures of the amalgamating

companies.

• Amalgamation in the nature of Purchase – These are the

amalgamations in which one company acquires another company

and, as a consequence, the shareholders of the company that is

acquired normally do not continue to have a proportionate share

in the equity of the combined company, or the business of the

company, which is acquired, is not intended to be continued.

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How the “Mergers” Regulated in India?

‘The Companies Act, 1956’

The provisions relating to merger and amalgamation are contained in

Sections 390 to 396A in Chapter V of Part VI of the Act. The summary

of the afore-mentioned sections is as follows:

Section 390 talks about Interpretation of sections 391 and

393.

In sections 391 and 393 the term ‘Company’, ‘Arrangement’ has

been defined. Also, it mentions that unsecured creditors who may

have filed suits or obtained decrees shall be deemed to be of the

same class as other unsecured creditors.

Further, Section 391 talks about Power to compromise or

make arrangements with creditors and members.

This section states that where a compromise of arrangement is

being proposed between a company or its creditors/ members (or

any class of them), the Court may, on the application of any

creditor/ member/ liquidator (as the case may be), order a meeting

of the creditors or members (as the case may be), to be called,

held and conducted in such manner as the Court directs.

The majority needed for making the compromise or arrangement

binding on all the creditors/members/liquidators (as the case may

be) is 3/4th in value of the creditors/members (as the case may be),

present and voting either in person or by proxy, at the meeting,

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provided Court has granted sanction to the arrangement.

However, no sanctioning order shall be given by the court unless

the requisite material facts relating to the company have to be

disclosed to it by the applicant. To become effective a certifiedcopy of the aforesaid order has to be filed with the registrar and

thereafter, annexed to every copy of the memorandum/

instrument defining constitution of the company (as the case may

be), otherwise a fine of one hundred rupees is levied on every

officer in default w.r.t. each such copy to which such order is not

attached. The court can stay the commencement or continuation

of any proceeding against the company, until the application if

finally disposed off. An appeal shall lie to the Court empowered to

hear appeals from the decisions of the Court, or if more than one

Court is so empowered, to the Court of inferior jurisdiction.

Section 392 talks about Power of Tribunal to enforce

compromise and arrangement

The Tribunal making an order under section 391 sanctioning an

arrangement, has the power to supervise the carrying out of the

arrangement and give directions w.r.t. modifications in the

arrangement, as it may deem fit for the proper working of the

arrangement and if it is satisfied that such arrangement

sanctioned cannot be worked satisfactorily with or without

modifications, it may, make an order winding up the company,

which shall be deemed to be an order made under section 433 of

this Act.

Section 393 provides for Information as to compromises or

arrangements with creditors and members With every notice

calling the meeting of creditors/members (as the case may be),

there shall be sent also a statement setting forth the terms of the

arrangement and explaining its effect, and in particular, stating

material interests of the directors etc., and the effect on those

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interests on the arrangement, and in every notice calling the

meeting which is given by the advertisement, there shall be

included either such a statement as aforesaid or a notification of

the place at which and the manner in which creditors or membersentitled to attend the meeting may obtain copies of such a

statement as aforesaid. Where the arrangement affects the rights

of debenture holders, the said statement shall give the like

information and also explanation as respects the trustees of any

deed. The creditors/members entitled to vote at the meeting shall

on application, be entitled to be furnished with the copies of

statement, where a notice given by advertisement includes a

notification that copies of a statement setting forth the terms and

explaining its effect can be obtained. The company and its every

officer who is in default shall be punishable with fine which may

extend to fifty thousand rupees if default is made in complying

with any of the requirements of this section. Every director,

managing director, or manager of the company, and every trustee

for debenture holders of the company, shall give notice to the

company of such matter relating to him as may be necessary for

the purposes of this section; failing which, he shall be punishable

with fine which may extend to five thousand rupees.

Section 394 Stipulates the Provisions for facilitating

reconstruction and amalgamation of companies

Where an application is made to the Tribunal under section 391 for

the sanctioning of a compromise or arrangement proposed

between a company and any such persons, the Tribunal may,

either by the order sanctioning the compromise or arrangement or

by a subsequent order, make provision for all or any of the

following matters -

(i) the transfer to the transferee company of the

whole or any part of the undertaking, property or

liabilities of any transferor company;

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(ii) the allotment or appropriation by the transferee

company of any shares, debentures, policies, or other

like interests in that company which, under the

compromise or arrangement are to be allotted orappropriated by that company to or for any person;

(iii) the continuation by or against the transferee

company of any legal proceedings pending by or

against any transferor company;

(iv) the dissolution, without winding up, of any

transferor company;

(v) the provisions to be made for any person who

dissent from the compromise or arrangement; and

(vi) Such other matters as are necessary to ensure

that the amalgamation shall be fully and effectively

carried out.

However, no amalgamation shall be sanctioned by the Tribunal unless

the Tribunal has received a report from the Registrar that the affairs of

the company have not been conducted in a manner prejudicial to the

interests of its members or to public interest:

Also, no order for the dissolution of any transferor company shall be

made by the Tribunal unless the Official Liquidator has, on scrutiny of

the books and papers of the company, made a report to the Tribunal

that the affairs of the company have not been conducted in a manner

prejudicial to the interests of its members or to public interest.

Within 30 days after the making of an order, every company shall cause

a certified copy thereof to be filed with the Registrar for Registration,

otherwise the company and every officer in default, shall be punishable

with fine which may extend to five hundred rupees.

Section 394A Notice to be given to Central Government for

applications under section 391 and 394

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The Tribunal shall give notice of every application made to it under

section 391 or 394 to the Central Government and shall take into

consideration the representations, if any, made to it by that

Government before passing any order under any of these sections.

U/S 395 the Act Describes the Power and duty to acquire

shares of shareholders dissenting from scheme or contract

approved by majority

Where a scheme or contract involving the transfer of shares or any

class of shares in a company (in this section referred to as "the

transferor company") to another company (in this section referred

to as "the transferee company"), has, within 4 months after the

making of the offer in that behalf by the transferee company, been

approved by the holders of not less than 9/10th in value of the

shares whose transfer is involved (other than shares already held

at the date of the offer by, or by a nominee for, the transferee

company or its subsidiary) the transferee company may, at any

time within 2 months after the expiry of the said 4 months, give

notice in the prescribed manner to any dissenting shareholder,

that it desires to acquire his shares; and when such a notice is

given, the transferee company shall, unless, on an applicationmade by the dissenting shareholder within 1 month from the date

on which the notice was given, the Court thinks fit to order

otherwise, be entitled and bound to acquire those shares on the

terms on which, under the scheme or contract, the shares of the

approving shareholders are to be transferred to the transferee

company. Any sums received by the transferor company under

this section shall be paid into a separate bank account, and any

such sums and any other consideration so received shall be held

by that company in trust for the several persons entitled to theshares in respect of which they said sums or other considerations

were respectively received. The following provisions shall apply in

relation to every offer of a scheme or contract involving the

transfer of shares or any class of shares in the transferor company

to the transferee company, namely:-

(i) every such offer or every circular containing such offer

or every recommendation to the members of the

transferor company by its directors to accept such

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offer shall be accompanied by such information as may

be prescribed;

(ii) Every such offer shall contain a statement by or on

behalf of the transferee company, disclosing the steps

it has taken to ensure that necessary cash will be

available;

(iii) Every circular containing or recommending acceptance

of, such offer shall be presented to the Registrar for

registration and no such circular shall be issued until it

is so registered;

(iv) the Registrar may refuse to register any such circular

which does not contain the information required to be

given under sub-clause (i) or which sets out such

information in a manner likely to give a false

impression; and

(v) An appeal shall lie to the Court against an order of the

Registrar refusing to register any such circular.

(b) Whoever issues a circular referred to in sub-clause (iii)

of clause (a) which has not been registered, shall be

punishable with fine which may extend to [five

thousand rupees].

Section 396 tells about Power of Central Government to

provide for amalgamation of companies in national interest

Where the Central Government is satisfied that it is essential in the

public interest that two or more companies should amalgamate,

then, notwithstanding anything contained in section 394 and 395

but subject to the provisions of this section, the Central

Government may, by order notified in the Official Gazette, provide

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for the amalgamation of those companies into a single company

with such constitution; with such property, powers, rights, interest,

authorities and privileges; and such liabilities, duties, and

obligations; as may be specified in the order.

The order aforesaid may provide for the continuation by or against

the transferee company of any legal proceedings pending by or

against may transferor company and may also contain such

consequential, incidental and supplemental provisions as may, in

the opinion of the Central Government, be necessary to give effect

to the amalgamation.

Copies of every order made under this section shall, as soon as

may be after it has been made, be laid before both Houses of

Parliament.

Section 396A draws the provisions related to Preservation of

books and papers of amalgamated company

The books and papers of a company which has been amalgamated

with, or whose shares have been acquired by, another company

under this Chapter shall not be disposed of without the prior

permission, of the Central Government.

The Companies (Court) Rules, 1959

Rules 67 to 87, Applicable Forms 33-42.

Listing Agreement

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Acquisition of shares pursuant to a scheme of arrangement or

reconstruction under any law, Indian or foreign – exempt from SEBI

Takeover Code.

o

Exemption claimed unsuccessfully by Luxottica in theacquisition of Ray Ban Sun Optics India

o Scheme before the Court/ Tribunal must not violate, override

or circumscribe the securities laws or stock exchange

requirements

o Disclosure required

o Shares allotted by unlisted transferee company to

shareholders of listed transferor company under a HCsanctioned scheme – can be listed without an IPO subject to

conditions (DIP).

o Eg. Dabur Pharmaceuticals

o Constitutes ‘Price Sensitive Information’ in terms of Insider

Trading Regulations.

o Compliance with Delisting Guidelines if public shareholding

below prescribe

Foreign Exchange Management Act, 1999

o Where the amalgamated company is Indian, nonresident

shareholders of the foreign amalgamating company require

RBI approval to receive shares.

o

Where the amalgamated company is foreign, the issue of itsshares to Indian shareholders requires RBI approval.

o Automatic route available where non residents have to be

issued shares in a merger of Indian companies.

Accounting Standards of ICAI

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AS Accounting for Amalgamation is done according to Accounting

Standard 14 (AS-14) issued by the Institute of Chartered

Accountants of India

Sales Tax Issues

No Sales tax on Amalgamation or demerger.

Where effective date is retrospective, any transfers between

amalgamating company and amalgamated company

retrospectively cease to be liable to sales tax- Mad HC Castrol Oil

v. State of TN, 114 STC 468

Some Sales Tax enactments contain specific provisions to tax such

transactions eg. S.33C, Bombay Sales Tax Act. No such provision

in Central Sales Tax Act.

The Income-Tax Act, 1961

Section 2(a) of the Income Tax Act defines amalgamation

Transfer of capital assets by amalgamating company to

amalgamated company is exempt from Capital Gains Tax provided

amalgamated company is an Indian company

Capital Gains Exemption in respect of shares issued to members of

amalgamating/ demerging company- s. 47

Exemption may not be available if members of amalgamating

company receive anything besides shares in the amalgamated

company like debentures or cash- Gujarat HC in Gautam Sarabhai

v. CIT , 173 ITR 216.

In case of fraction shares, issue to trustee who liquidates these

and distributes money to shareholders of amalgamating company.

Carry forward of losses and unabsorbed depreciation provided the

amalgamated company carry on the business of the amalgamating

company for at least 5 years – s. 72A

The Stamp Act

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Divergences between states: Shopping for beneficial rates usually

pointless

Duty to be imposed on value of shares transferred not on

individual assets transferred: Bom HC in Li Taka AIR 1997 Bom 7States with Specific entries: Maharashtra, Karnataka, Rajasthan

and Gujarat

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REGULATORY/ STATUTORY AUTHORITIES INVOLVED

There are numerous regulatory authorities involved in a merger

process; the most frequently involved are as follows:

Stock Exchange

Competition Commission of India

Registrar of Companies

Regional Director

Official Liquidator

High Court

Reserve Bank of India

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Role of ‘Due Diligence’ in Mergers

Any proposal of amalgamation or merger begins with the process of due

diligence, as the proposal for merger without due diligence is likeentering a tunnel with darkness growing with each step. The due

diligence process is the stepping stone to the journey of Merger.

Due Diligence refers to the process of appraising, assessing and

evaluating business risk with analysis of cost benefit which is involved in

Merger & Amalgamation. The decision to merge or amalgamate has to

be based on considered opinion, which can be formed only afterscanning of information and records available. Due Diligence embraces

the assessment process to judge the benefits vis-à-vis the troubles that

will be faced in post merger scenario. The process of due diligence

cannot be sidestepped in Mergers, which is a broader term than financial

audit and goes beyond the books of account maintained by the entity

and involves analysis of actions of entity – assessment of problems faced

by the entity, impact of legal cases, tax assessments, hidden liabilitiesetc. The due diligence process includes review of cash flows – past and

future, status of tax assessments and its financial impact, valuation of

assets, digging out hidden liabilities after an independent assessment,

assessment of viability, review of technical feasibility, assessment and

analysis of information technology security systems etc.

In short, it encompasses –

1. Review of Commercial viability

2. Review of Financial liability

3. Review of Tax Assessments

4. Review of Legal cases

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5. Review of Manpower Resources

6. Review of compliance of laws

The due diligence process is a team work consisting of chartered

accountants, lawyers, valuers having expertise in their own field. The

assessment, review, analysis, scrutiny and examination under due

diligence process involves specialization and application of mind which

goes beyond fact finding exercise i.e. mere checking of records

available. The Chartered Accountants play a major role in due diligence

process and no meaningful due diligence would be complete without

their participation. The team, which has been, assigned the task of due

diligence follows the following steps: -

1. Identification of the purpose of Merger and Acquisition.

2. Review and Study of past Business operations.

3. Study of Information System within the organization.

4. Collection of Documents.

5. Assemblage of Key Information from Management and

Independent sources.

6. Allocation of review responsibilities amongst team members.

7. Compilation of findings of team members.

8. Assessment of findings.

9. Preparation of due diligence report.

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PROCESS OF MERGER

The following discussion is of importance in understanding how

practically a merger process is executed and to have an understanding

of the important timelines involved.

Merger Checklist - The schedule of activities to be carried out by the

Companies involved in restructuring exercise is described here in below:

Activity

Section

of Compa

nies

Act/

Clause

of

Listing

Agree

ment

Companies

(Court) Rules

Remarks

Rule Form

1. Preparation of the draft Scheme of

Arrangement2. Convening of a Board meeting for

considering following business:

a) To approve the scheme

b) To authorize Directors/ Company

Secretary/ other officers to take

following actions:

• To sign the application, affidavit,

notice of the meeting & other

relevant documents.

• To make an application or

petition to the High Court

• To do such acts, deeds and

things, as may be necessary or

expedient in connection

therewith.

• To carry out any changes in the

Sectio

n 286

Provisions of

Section 286

should be

complied

with.

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scheme.

c) Appointment & Authorization to

Solicitors/ Advocates.

3. The Stock Exchanges, on which the

Company is listed, shall be informed as

early as possible, about the decision of

the Board meeting.

Clause

36(7)(ii)

This is

applicable only

to the Listed

Companies

4. The scheme of arrangement shall be

submitted with the Stock Exchanges for

their approval, at least one month

before the filing of scheme with High

Court.

Clause

24(f)

This is

applicable only

to the Listed

Companies

5. After obtaining confirmation from Stock

Exchanges, application shall be made

to High Court for issuing directions to

convene meetings:-

a) Members of the Company

b) Members of the each class, if the

company has different class of

shares

c) Creditors

d) Each class of creditor of the

company, if Company has different

class of creditors

e) For the appointment of Chairman.

Section

391(1)

Rule

67

Summ

on in

Form

33

with

Affida

vit in

Form

34

6. High Court shall give directions in

following respect:

a) To determine the class/ class of

members and/ or creditors whose

meetings have to be held for

considering the proposed

compromise or arrangement

b) To fix time or place of the meetings

c) To appoint the chairman for themeeting

Rule

69

Form

35

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d) Prescribed mode of dispatch and

publication of notice.

e) Time within which the Chairman

should file a report of the meeting

f) Any other matter the court maydeem necessary.

7. Following documents shall be sent to

the members and creditors for the

purpose of meeting not later than 21

clear days before the meeting or as

directed by the Court:

a) Notice for calling the meeting;

b) Form of proxy;

c) Scheme of arrangement;

d) Explanatory statement;

Section

393 &

Clause

24(h)

Rules

70 &

73

Notice

in

Form

36 &

Proxy

Form

in

Form

37

Notices shall be

sent under the

‘Certificate of Posting’

8. Public notices shall be published in one

English language and one vernacular

language newspaper, as per thedirections of the High Court.

Rule

74

Form

38

Normally, the

Court also gives

names of

newspapers in

which notices

shall be

published

9. Three copies of the Notice along with

all the annexure shall be sent to the

Stock Exchanges simultaneously with

the dispatch to the members.

Clause

31(c)

Applicable only

to listed

companies

10. Three copies of Notice of the Meeting

published in the Newspaper shall be

sent to the Stock Exchanges

simultaneously with the publication.

Clause

31(e)

Applicable onlyto listed

companies

11.The Chairman of the meeting shall file

an affidavit 7 days before the meeting

stating that all the directions regarding

the issue of notices and the

advertisement have been duly

complied with.

Rule

76

Court may direct

either chairman

or the Advocate

of the Company

for this purpose

12.Convening the meetings of members & Section Rule Company must

21



creditors:

a) Convene the meetings under

the Chairmanship of the person

appointed by the Court;b) Voting at the meeting shall be

done by poll only

391(2) 77

prepare ballot

papers in

advance

13. Intimation to the Stock Exchange about

the result of the meetings.

Clause

36(7)(ii)

This is

applicable only

to the Listed

Companies14.The Chairmen of the meetings shall file

the report of proceedings of the

meeting within 7 days of the meeting.

Rule

78

Form

39

15.Form no. 23 w.r.t. the resolutions

passed at the meeting shall be filed

with office of Registrar of Companies

within 30 days of meeting.

Section

192

Form 23 of

Companies

(Central

Government’s)

General Rules &

Forms16. Petition shall be filed with High Court

for approval of the scheme of

amalgamation within 7 days of filing of report by the Chairmen in the High

Court.

Section

391 (2)

&Section

394

Rule

79 &82

Form

40

17. The Court shall fix the date & Time of

hearing and also order publication of

notices in the newspapers.

Rule

80

Court may give

names of

newspapers in

which notices

shall be

published

18.The Regional Director and Official

Liquidator shall submit their reports

with the High Court before the date of

hearing.

This task must

be handled

meticulously.

Normally, delays

in Court order

occurs due to

non-submission

of report by any

of them

19. At the hearing, the High Court shallconsider the report filed by the

Representativesof Regional

22



Chairmen of the meetings and shall

order for notices to be sent to Regional

Director, Ministry of Company Affairs

and Official Liquidator attached to theHigh Court.

Director/

Registrar of

Companies and

Official

Liquidator arepresent at final

hearing

20. At the final hearing, the Court shall

issue order confirming sanctioning of

scheme of arrangement.

Rule

81 &

84

Form

41

Court may give

due

considerations

to objection filed

by any

shareholder/

creditor/

employee/

general public,

etc.

21. A certified copy of the order shall be

filed with the Registrar of Companies

within 14 days or such other time as

may be fixed by Court, of passing of

final order (time obtaining of copy of

order shall be excluded)

Rule

81

Order shall be

filed along with

Form 21 of

Companies

(Central

Government’s)

General Rules &

Forms

22. The Stock Exchanges shall be intimated

about the sanctioning of the scheme.

Applicable only

to the Listed

Companies

23. Fixing of record date for allotment of

shares as per scheme of arrangement

Clause

16

Notice to be

given 15 days in

advance for

fixation of

record date

24. Allotment of shares Sec. 73

Filing of Form 2

with Registrar of

Companies

25.Application to SEBI by the unlisted

companies for listing pursuant to

exemption from Rule 19(2)(b) of

Securities Contracts (Regulation) Rules

Application shall

be made

through

designated

Stock Exchange

23



26. Application to Depositories (NSDL/

CDSL) for admitting newly issued

securities

To be made by

existing listed as

well as newly

listed companies

27. Application for listing of newly issued

shares to the Stock Exchange

Existing as well

as newly listed

companies to

approach Stock

Exchanges for

listing of newly

issues shares

Getting started with Merger: In order to start with the process of

merger explained above, there are many documents that are to be

taken from the client and many important things that are to be ensured

for the smooth flow in the execution of the merger process.

Merger Activity Schedule:

S. No.

ActivityTime Frame

1. Valuation of Companies shares for exchange of shares to

be prepared by independent Chartered Accountants

Before 0

2. Finalize drafting of

(a) Scheme

(b) Explanatory statement u/s 393

(c) Petition under Section 391(1)

(d) Letters to shareholders

(e) Notice to Stock Exchanges

0 day

3. Board meetings of companies to be held to:

(a) Approve the scheme of amalgamation

(b) Accept the report of the CA’s on valuation and

exchange of shares

(c) Authorize directors and company Secretary to take all

action for implementing the scheme of amalgamation

(d) Authorize solicitors to take all actions

0 days

4. Advise Stock Exchange on the decision of the board &

filing of Copies of Scheme for approval

1 days

5. Application u/s 391(1) of the Companies Act to be moved

for an order convening meeting of shareholder’s scheme

30 days

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of amalgamation to be annexed.6. High Court will give order on the application of the

company on the following:

(a) Date, time and venue of the meeting

(b) Appointment of the Chairman

(c) Time within which the Chairman of the meetings will

give his report

35 days

7. Notices of Extraordinary General Meeting of and Listed

Company Limited

40 days

8. Advertisement for the notice calling for the meeting in

Newspapers 21 days before meeting

40 days

9. Convening the meeting of the members & creditors. 65 days

10. Forward to all Stock Exchanges the copies of the minutes

of the meeting

66 days

11. Petitions to be filed u/s. 391(2) within seven days of the

filing of the report of the Chairman to the court for

confirmation of the scheme of amalgamation

80 days

12. Filing of copies of Petition with ROC, RD & OL 80 day

13. Court will fix a date of hearing 85 days

14. Notice of hearing shall be advertised in the same papers

in which the notice of the meeting was published not less

than 10 days before the date of hearing.

100 days

15. Date of hearing & High Court to approve amalgamation 120 days

16. Notice to Stock Exchanges of the result 120 days

17. File copy of the order with the Registrar of the Companies 150 days

18. Board Meeting to allot shares 160 days

19. File return of allotment 175 days

20. Apply to Stock Exchange for listing of shares. 177 days

Note: The process of merger can be completed within a period of 4

months but where the meetings of the Creditors/Shareholders is/are

held, more time is taken as depicted in the Activity Schedule writtenabove.

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Documents required - While started with the merger assignment, it is

always better to request the client (Transferor and Transferee Company)

to provide the following documents so that he merger can be executedsmoothly:

S. NO. DOCUMENTS REQUIREDNO. OF

COPIES

1.Copies of the Scheme of Arrangement- Each page stamped

and signed on behalf of both the Companies.4

2.

Latest List of the Shareholders (Name, Address &

Shareholding) of all the Companies duly signed by the

Authorized Directors of respective Companies

4

3.

Latest List of Secured Creditors (if any), of all the

Companies duly signed by the Authorized Directors of

respective Companies

4

4.

Latest List of Unsecured Creditors (if any), of all the


respective Companies

4

5.

Latest List of Directors with their shareholdings, of all the


respective Companies.

4

6.

Certified Copy of the Resolution passed by the Board of

Directors of all the Companies for approving the Scheme of

Amalgamation

4

7.

Certified copies of the Annual Accounts of all the

Companies for last 3 financial years (Notice, Director’s

Report, Compliance Certificate, if applicable and Auditor’s

Report should form part of the Balance Sheet)

3

8.Letter of Consent from all the Shareholders of all the

Companies – Original1

9. Letter of Consents from all the Creditors (Secured and

Unsecured loan holders) – Original1

10.Certified copy of Board Resolution authorizing a director to

sign the consent letter on behalf of Company(s)4

SCHEME OF ARRANGEMENT – The Scheme of Arrangement is the

most important document and has to be drafted keeping in mind some

very important points. The contents of the Scheme of Amalgamation areas follows:

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Details of the Transferor and Transferee Company

Appointed date and effective date

Rationale for the scheme of amalgamation

Effect of the scheme on the undertakings, business, contracts,

legal proceedings, assets, liabilities and employees of the

Transferor Company(s)

Share exchange ratio procedure and terms of the issue of new

shares, cancellation of the existing shares

Restructuring of the liabilities

Accounting treatment

Dissolution of the Transferor Company(s)

Provisions for modification of the scheme, if directed by the

regulatory authorities

Pre-conditions subject to which the scheme would operate such as

approval of requisite authority, sanction of high court, filing with

Registrar of Companies

Liability to bear cost, charges, expenses of the merger

Details of properties and liabilities to be transferred

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RISKS INVOLVED IN MERGER

Major mergers have to be handled carefully because they have little

scope for trial and error and are difficult to reverse. The risks involved

are not merely financial ones. A failed merger can disrupt work

processes, diminish customer confidence and can have a significant

influence on the brand and product loyalty, damage the company’sreputation, cause employees to leave and result in poor employee

motivation levels.

Many mergers fail as the integration stage so it is important to

understand the risks involved in integration and to ways to manage

these risks. The integration process should be guided by strategic vision,

which should be backed by operating strategy which takes into accounthow the value chain performance can be improved, weather competitors

will react aggressively and if they do how they can be dealt with.

In some areas the two entities should be tightly integrated while in other

they should be left alone and what to leave alone is a matter of

judgment.

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MANAGING THE RISKS

It is necessary to emphasize the need for a comprehensive role for the

HR function in the negotiation before a merger deal is finalized. HRmanagers usually enter the discussions much later, to deal with issues

like compensation. Instead, if they join the discussion at an early stage

and conduct the cultural audit, potential troubles spots can be identified,

very early on. Some of the point should be considered in the integration

stage so as managing the risks, these are shown below:

The integration team should build organizational capability by theretaining talented manpower.

Downsizing activities must be managed with a great deal of

sensitivity. Otherwise, they may fuel a large-scale exodus of

people. A related issue is finding the right roles for the people.

Clarity in specifying the roles for employees and what their new jobs will be after the merger and to whom they will report.

Systems and procedures that are implemented must be in line

with the strategic intent of the merger.

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The integration team must identify the cultural traits that are

consistent with the business goals of the merged entity and take

steps to spread them across the two or more entities.

The team must manage cultural differences by collaborating with

the managers throughout the organization.

The post merger drift tendencies should be minimized by

managing the transition quickly, if decisions and changes are not

implemented fast, the transferee company may become focused

on the issues and lose sight of the customers, competitors.

Internal communication with employees must be made on a

regular and timely basis, also communication with external

stakeholders such as customers, vendors and the community must

be done in a swift manner.

Clearly defined integration plans are of lot of help which includesidentification of team that will conduct due diligence and of the

team which will plan and implement the merger. Checklists must

be prepared to indicate the tasks and suggested deadlines.

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CORPORATE GOVERNANCE IN CONTEXT OF MERGERS

Effective merger governance integrates several keys dimensions:-

Stewardship - Larger enterprises in particular may try to reduce

the governance issue to matters of contracts and laws. But much

of governance is informal, embodied in day to day operating

decisions and exchanges of critical information. Alliances need

stewards, not just contract managers. Excessively detailed

contracts actually limit the ability of the alliance to adapt to

changing conditions and often create tension and frustration from

which the working relationship never recovers.

Resource Allocation – Successful integration requires employing

capital and people to make the effort succeed, including

redirecting the resources as priorities change. Alliances are

growing more complex, and they increasingly tap the core

capabilities of each corporate’s parent, so flexibility in governance

is the key. Changing conditions require a freer exchange of

resources, especially skilled people and intellectual property.

Decision Facilitation - The complexity of alliances generally

preclude governance by a single person or ad-hoc committee. The

flow of activities and information is simply too complex and

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important for narrow ownership. A better model is a governance

structure where decisions happen at various levels. Done well,

such governance is not bureaucratic. It involves the right people,

leverages, the right skills and information, improvescommunication and eliminates missteps and misunderstandings.

The overall result is faster and better decision making.

Culture Management – Making desperate organizations work as

one, committed to acting in the best interest of the venture is a

tough job. Explicit actions and programmers are required to

harmonize the cultures of the emerging entity.

Prescriptions for prevention: employees, managers, board members and

shareholders need to address issues of corporate governance at all

stages, from pre-acquisition, due diligence to post-acquisition

integration. Here are some recommendations:

More Comprehensive Due Diligence – Assessing the quality of

governance practices require going beyond an assessment of the

internal control system. Shareholders not on the board should expect a

corporate Governance report as part and parcel of M & A information,

addressing questions such as whether the target company supports

effective governance policies, communication, company ethics and anti-

fraud policies, and whether it can prove it.

Better pricing: - Value the Governance issues. An Acquiring business

must know how to adjust the price of the potential target. During the

negotiating process, managers should set up explicit objectives with

their analysts, M & A Advisors and Auditors regarding their assessment

of the risk of governance failures.

Minimize Leadership Confusions during the transition Periods: -

In the Transition phase of an M&A, Management should communicate

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immediately who is in control across the different levels of the

organization. Leadership should avoid the confusion and allow

employees to follow the policies more easily. Managers should

communicate information not only on the status of the integration, butalso on the increased likelihood of the frauds. The fraud prevention

system the acquirer has in place is likely to be challenged or ignored

while the companies restructure themselves into a single, new entity.

Any steps that management can take with respect to clear policies and

procedures, communication opportunities or hotlines for reporting

problems will be time and effort well spent.

Diminish Employee Grievances during the transition period: -

There is no point in delaying harsh measures for people who do not fit

with the new business. Not only do delaying tactics generate, inertia in

the implementation process, but they also sow the seeds of employee’s

dissatisfaction, which ultimately increases the chance of fraud. For the

remaining people, managers must also be sensitive to the increased

pressures generated by the transition period.

Transfer of Best Practices during the Integration Phase: -

Businesses that understand the negative effects of the transfer of

systems that facilitate fraud can consciously choose to transfer the

systems that deter fraud. To do so it requires a fair assessment of the

current governance practices and the humility (notably on the part of

the acquirer) to adopt the target company’s practices when they are

superior.

Assess Country’s Governance Practices: - As the managers

increasingly pursue cross-border acquisitions, it is important to assess

the quality of governance and practices in each national environment,

including shareholder protection, creditor’s protection, accounting

reporting standards and level of country’s corruption.

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Managers of a target company from a stronger investor-protection

regime can make contractual arrangements so that the merged

organization adopts their governance practices to compensate for

deficiencies in the acquirer country’s legal environment.

The Lessons

Merging Companies must devote resources to addressing corporate

governance issues associated with the acquisition process. While such

efforts add costs and time to the deal, manages should bear in mind that

M&As provide organizations with an opportunities to gain greater control

of exiting or newly acquired businesses.

VOTE OF THANKS

• To Respected Law Makers

• To The Institute of Company Secretaries of India

• To NIRC Gurgaon Chapter Staff

• To Respected Book Authors who Provided Such a nice

material to learn so that we would become able to make

this Project.

• To all the 1st SMTP Participants at Gurgaon Chapter who

Provided great co-operation to us.

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Vote of thanks Given by : -

The Members of The Group “IMPACT”

Gurudatta

Ankit

Dhanoj

Akash

Deepak

ITI SHREE

Mergers Steps

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