Lecture-1 Merger and amalgamation INTRODUCTION A company may decide to accelerate its growth by developing into new business areas, which may or may not be connected with its traditional business areas, or by exploiting some competitive advantage that it may have. Once a company has decided to enter into a new business areas, it has to explore various alternatives to achieve its aims. Basically, there can be three alternatives available to it: (i) the formation of a new company; (ii) The acquisition of an existing company; (iii) Merger with an existing company. The decision as to which of these options are to be accepted will depend on the company’s assessment of various factors including in particular: (i) the cost that it is prepared to incur; (ii) the likelihood of success that is expected; (iii) the degree of managerial control that it requires to retain. For a firm desiring immediate growth and quick returns, mergers can offer an attractive opportunity as they obviate the need to start from ‘scratch’ and reduce the cost of entry into an existing business. However, this will need to be weighed against the fact that part of the ownership of the existing business remains with the former owners. Merger with an existing company will, generally, have the same features as an acquisition of an existing company. However, identifying the right candidate for a merger or acquisition is an art, which requires sufficient care and caliber. Once an organization has identified the various strategic possibilities, it has to make a selection amongst them. There are several managerial factors which moderate the ultimate choice of strategy. This would depend upon its growth objectives, attitude towards risk, the present nature of business and technology in use, resources at its command, its own internal strengths and weaknesses, Government policy, etc. The changing economic environment is creating its own compulsions for a consolidation of capacity. With growing competition and economic liberalization, the last two decades have witnessed a large number of cases of corporate mergers.
CONCEPT OF MERGER AND AMALGAMATION A merger has been defined as the fusion or absorption of one thing or right into another. It may also be understood as an arrangement, whereby the assets of two (or more) companies become vested in, or under the control of one company (which may or may not be one of the original two companies) which has as its shareholders all or substantially all, the shareholders of the two companies. In other words, in a merger one of the two existing companies merges its identity into another existing company or one or more existing companies may form a new company and merge their identities into a new company by transferring their businesses and undertakings including all other assets and liabilities to the new company (hereinafter referred to as the merged company). The shareholders of the company or companies, as the case may be) will have substantial shareholding in the merged company. They will be allotted shares in the merged company
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- Fall '16
- Corporate Finance