A business merger may give the acquiring company a chance to grow its market share. In addition, diversification in the business puts companies at an advantage when they choose to merge or acquire another business. Mergers and acquisitions are also cost-effective.
The acquisition can also increase the supply-chain pricing power. For example, a beer company may choose to buy out a smaller competing brewery, enabling the smaller outfit to produce more beer and increase its sales to brand-loyal customers. By buying out one of its suppliers or distributors, a business can eliminate an entire tier of costs. Specifically, buying out a supplier, which is known as a vertical merger, lets a company save on the margins the supplier was previously adding to its costs.
And by buying out a distributor, a company often gains the ability to ship out products at a lower cost. On the downside, a large premium is usually required to convince the target company's shareholders to accept the offer.
It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower, in response to the company paying too much for the target company. Whole Foods Market. Career Advice. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content.
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Kison Patel. Motive 1: Economies of Scale Bigger is often better. The requirement of majority in number does not serve any useful purpose considering that value is simultaneously being considered as a criterion. Besides, international practice recognizes value as the determining factor and does not appear to impose such additional conditions.
Under the present scheme of Act, the manner of holding of the meetings of the creditors and shareholders as also dispensing with the same is left to the discretion of the courts. However, different courts follow different procedures.
The Committee feels that there is a need for uniformity in this regard and recommends that rules may be formulated under the Act to cover this aspect, including dispensing of the requirement to hold such meetings. The philosophy behind such a move would be to streamline the procedure of articulation of the minority interest while restricting obstructionist attitude on the part of any section of minority.
The Committee reviewed the international models of mergers and amalgamations. In the case of mergers within a group, the Act may prescribe a short form of amalgamation. Conceptually a scheme of amalgamation or merger between holding company and subsidiary company stands on a different footing from amalgamation and merger between two independent companies. So also merger between two private limited companies should be viewed differently as compared to the merger of two public limited companies.
The concept of contractual merger should also be thought of as an alternative to the form of merger available under the Act as on date. A forward looking law on mergers and amalgamations needs to also recognize that an Indian company ought to be permitted with a foreign company to merger.
Both contract based mergers between an Indian company and a foreign company and court based mergers between such entities where the foreign company is the transferee, needs to be recognized in Indian Law. The Indian shareholders should be permitted to receive Indian Depository Receipts IDR in lieu of Indian shares especially in listed companies or foreign securities in lieu of Indian shares so that they become members of the foreign company or holders of security with a trading right in India especially in listed companies.
Further, in such cases, the shell of such company should be allowed to be dissolved without winding up with court intervention. The present Act does not permit this form of merger in view of the specific definition of company under section a of the Companies Act.
The Committee therefore recommended adoption of international best practices and a coordinated approach while bringing amendments to the code of merger in the Companies Act. In the case of Companies required to appoint independent directors, the Act should mandate the Committee of independent directors as a monitoring body to ensure adequacy of disclosures.
As a result, such schemes that would otherwise enable the return of the corporate to viable operation, get delayed or scuttled. Appropriate remedies for misstatement and the ability to revoke such an order with punishment for any misstatement would be an adequate safeguard for false misstatement.
The unsecured creditors are subsequent in the queue and without the consent of the secured creditors and their debt restructuring, they would have no hope to receive their dues. The Committee recommended that the need to file a separate scheme for reduction of capital simultaneously the scheme for merger and acquisition should be avoided.
The provisions relating to obtaining consent from unsecured creditors should be done away with. The creditors consent may be necessary only in case of companies not meeting the liquidity test. Existing Section empowers Central Government to order amalgamation of two or more companies in public interest.
It has been suggested that these provisions should be reviewed. At any point of time the transferor company and the transferee company, both companies would have paid fees of their respective authorized share capital at the rates specified in Schedule X of the Companies Act,
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