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The Act is intended to supersede and replace the MRTP Act in a phased manner. The Act is procedure intensive and is written in a simple way to make it more flexible and easy to comply with. Though the Act operates in tandem with other laws, the provisions of the Act, takes precedence over other Acts in case of any inconsistencies. Gives access to new product lines or expansion of current portfolio, adding of more customer categories etc. Gives access to management and technical talent and manpower, niche skills and knowledge, proprietorial information etc. Multiplex operating firms PVR and INOX Leisure have announced their merger.
Under the 1956 Act, companies which have reached a consensus to merge were expected to prepare a “scheme” of amalgamation/merger (“Scheme“). The Lenders (financial institutions and / or banks), if any, of the merging companies were required to provide in principle approval to the “Scheme”, followed by the approval of the respective Board of Directors of the merging entities. The companies would then apply to the relevant High Court seeking an order to convene shareholders’ and creditors’ meeting. This would allow any Shareholder wishing to raise an objection to the Scheme do so during the court proceedings.
Types of Mergers
It involves low capital investment by the franchisor as the capital used to expand the network comes from franchisees. The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital. One of the biggest cost advantages of franchising a business larger sums of money to advertising. Which covers major media wide geographical area. To successfully establish a franchise, franchisors are required to work with an experienced franchise lawyer to establish a solid blueprint for franchising.
The Audit Committee should also have the duty to verify whether the valuer has an advisory mandate and had past association with the company management. The Audit Committee should verify the independence of the valuer for the purposes of an independent valuation. In the case of companies not required to have Audit Committee, this task should be carried out by the Board. The 2013 Act allows objections to be raised only by shareholders holding 10% or more of equity and creditors whose debt represent 5% or more of the total debt as per the last audited financial statements. This helps companies to avoid frivolous objections/litigation. Combinations where the involved companies, exceed the assets / turnover thresholds as defined under the Act , is mandatorily required to obtain the CCI’s approval for such combinations.
TFL transferred its assets, liabilities and shares to TCL. Identify the type of merger and explain the same. If an enterprise is not sensitive to change in technology then its technology will become outdated and it has to quit the market. It is mainly because the cost of production will become higher compared to other enterprises; this will lead to decrease in demand of this product. Michael Porter gave the value chain analysis concept in his 1985 book ‘The Competitive Advantage’.
The acquirer prepares two sets of financial statements. Along with its statement, it prepares to combine the financial statement of the acquiree. The information included is post-acquisition. Anything related to the period before the acquisition will not form part of the consolidated financial statements. Employees and expert managers are the assets of the company. Combining two or more companies also brings together the best management personnel.
Payment of Wages Act etc. Fulfilment of legal aspects is the legal as well as moral duty. Violation of laws leads to punishment or fine. This leads to loss of goodwill, affects faith of shareholders and also results in loss of money, time and energy. Each entrepreneur is expected to be a member of healthy competition. Unhealthy competition leads to downfall of the enterprise in the long run.
Purpose of Mergers and Acquisitions
This will give the company an advantage over its competitors. Amalgamation increases market trust. The majority of global market amalgamations have increased the amalgamating company’s goodwill. The effects of any changes in accounting policies on the financial statements are reported in accordance with Accounting Standard, Net Profit or Loss for the Period, Prior is the result of combination of two or more companies Period Items, and Changes in Accounting Policies. The assets, liabilities, and reserves of the transferor company are recorded at their current carrying amounts by the transferee company under the pooling of interests method. Following the Amalgamation process, ABC Corp and XYZ Corp will cease to exist, resulting in the formation of a new entity, JKL Corporation.
The Competition Commission of India is the regulatory authority responsible for reviewing proposals for combinations and assessing whether such combinations are likely to adversely affect competition in Indian markets. As a result, pre-merger financial and legal due diligence is more important in appropriately calculating synergies. The major motivating element behind mergers is synergy, which is not always accomplished and does not necessarily result in improved shareholder returns. If revenue synergies can be considered to be value-added at the front end, cost synergies might well be considered value-added in the back office. On December 22, 2021, ZEEL announced their merger with and into SPNI , Sony will own 50.86% of the merged entity, while Zee’s promoters would own 3.99%. The remaining 45.15 percent will be held by Zee’s other shareholders.
In general, the business operations of a merged company grow faster than those of individual companies. Expansion is possible when a merged company can deal with competition more effectively. It can share previous experiences as needed. It can also make the most of joint expansion plans. When two companies merge, the assets and liabilities of the target company are combined with the assets and liabilities of the surviving company. The shareholders of both companies are combined with the shareholders of the new company.
So care has to be taken to ensure that regulatory hurdles and problems do not crop up, else it may lead to failure. The concept is of diversification. It is a process of adding new products or markets to the existing, by an enterprise. Here, the enterprise thus is able to produce more types of products e.g. not only https://1investing.in/ washing soap, but toilet soaps, shampoos, detergents, washing powders etc. are produced by such enterprises. For example, Samsung not only produces TV but washing machines, copying machines, printers, etc. Joint Venture is a separate entity formed by two or more companies to undertake commercial activities together.
To acquire Cash Resources
Because of the higher cash flows and ease of doing business that result from this merger, a company’s existing resources that are not being used to full capacity due to high operating costs can now be effectively utilised. Instead, a completely new entity is formed to house both companies’ combined assets and liabilities. Amalgamation occurs when two or more firms join forces to form a new firm in order to survive in a new business environment. Both firms will be eliminated from the business, but they will retain control of the new firm.
Asset acquisition is different from Business Combination. It is important that the asset acquired should constitute a business. Mere acquiring a group of assets will not be considered a Business combination. In upcoming sections, we have discussed business combination, its type, example, advantages and disadvantages in detail.
The Sick Industrial Companies Act has been subsumed in the company law and the principles therein, therefore, are eminently capable of being modified and applied in the new company law to be made. The Concept Paper on Company Law contemplates that an order of the scheme of merger will be effective only if a certified copy of the order of the Court is filed with the Registrar and duly registered. The Committee felt that it should be enough if the company complies with the filing requirement with the Registrar of Companies as is presently provided, to make the scheme effective. The 1956 Act required the presence of the shareholders and creditors in the physical meetings, either in person or by proxy, to cast their vote for/against the Scheme.
- This calls for growth and development which in essence is achieved through constant strife.
- Shri Jhunjhunwala is an Entrepreneur Shri Jhunjhunwala of Varanasi is a businessman engaged in the production of “Jhula Vanaspati”.
- How high leverage is a reason for failure of merger?
- Acquisition of General Foods, a diversified food products company, by Philip Morris, a Tobacco manufacturer.
- In a joint venture, a new enterprise is formed with participation in ownership, control and management of two or more parties.
It plans to achieve synergy benefits through a well-planned restructuring strategy. 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, 1956. Upon dissolution of the transferor company into the transferee company, the fees paid by the transferor company go waste and the transferee company gets no set off for the same. 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 Reserve Bank of India has specific tools for fast track debt restructuring known as the CDR Mechanism .
It is also known as a takeover, means the buying company takeover or acquire by another. Its recognition of interse shareholder rights takes the law one step forward to an investor-friendly regime. The 2013 Act seeks to simplify the overall process of acquisitions, mergers and restructuring, facilitate domestic and cross-border mergers and acquisitions, and thereby, make Indian firms relatively more attractive to PE investors. All mergers and acquisitions have one common goal, i.e., to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved or not. Synergy may be in the form of higher revenue streams and cost savings.
All you need to know about Combination (Merger Control) Regulations
Explain in detail the types of mergers. Explain the advantages of franchising, both for the franchisor and franchisee. Synergy is the benefit that results when two or more firms together achieve something either one couldn’t have achieved on its own. It’s the concept of the whole being greater than the sum of its parts. Dr. Reddy’s Laboratory Ltd. is known for their inorganic growth strategies.
Economies of large-scale operations
However, for the first time, it acknowledged the threat and the need to create scale to fight the onslaught. The timing of the deal was unclear considering the recovery in the cinema industry and the strong pipeline of movies, including recent feedback on box office revenue. The combined business is also reported to have roughly a 25% market share in the linear TV arena and potentially generate $2 billion in annual income. Market synergies are similar to revenue synergies in that they both refer to an increased power to negotiate with customers on items. The various competition regulatory bodies have capped this form of synergy to some extent.
The amalgamated company purchases the cash resources of the other company, increasing the amalgamated company’s cash resources. Managerial effectiveness refers to a manager’s ability to achieve the desired outcome in business operations. Because ABC Corporation is a more robust entity than PQR Corp, the absorbing company, i.e., ABC Corporation, is the resultant entity. Because companies typically do not want to join forces with their competitors, an outsider is frequently required to put together a merger.
It is also known as process combination or sequence combination. Companies are operating at different levels. Its aim is to reduce the unnecessary cost of production and maintain the quality of the final product or services. Growing business organically is a slow process.