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Date:- ___________
Aditya Chopra
____________________________
1|corporate law
CERTIFICATE
Dr.
Kiran Rai
____________________
2|corporate law
INDEX
CHAPTER 1
Introduction of Topic
Nature and Scope of
the Study
Objectives of the
study
CHAPTER 2
Concept of
merger/amalgamations
Concept of
acquisitions/takeovers
Difference between
merger & acquisition
CHAPTER 3
TATA-CORUS
acquisition – the
biggest Indian
Acquisition
CHAPTER 4
Conclusion &
Suggestions
BIBLIOGRAPHY
Books
Web References
Case Laws
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Chapter – 1
4|corporate law
INTRODUCTION
1
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd.
5|corporate law
public quoted company or a private company owning or controlling
another public quoted company.
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Nature and Scope of Project
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Objective of Study
There are four main objectives to carry out the project work which
are as follows:
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Chapter – 2
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Concept of Merger/amalgamations
what is amalgamation?
In W.A. Beardsell & Co. Ltd, Re3. The Madras High Court Observed
that:
The word ‘amalgamation” has not been defined in the act. The
ordinary dictionary meaning of the expression is ‘combination’.
Judging from the context and from the marginal note of the section
394 which appears in chapter V relaying to the arbitration,
compromises, arrangements and reconstructions, the primary
object of amalgamation of one company with another is to facilitate
the reconstruction of the amalgamating companies and this is a
matter which is entirely left to the body of shareholders, (and)
essentially an affair related to the internal administration of the
2
Bank of India Ltd. v. Ahmedabad Mfg & Calico Printing Co., (1972) 42 Comp Cas 211.
Industrial Credit & Investment Corpn of India v. Financial & Management Services Ltd., AIR
1998 Bom 305.
3
(1968) 38 Comp Cas 197, 204 Mad.
Reliance Jute Industries Ltd, Re. (1983) 53 Comp Cas 591 Cal
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transferor company. The decision of the body of the shareholders
not ought to be lightly interfered with.
4
Gower’s, Modern Company Law, chapter 28
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the parts for them, then that merger is called as the vertical
merger.
3. Conglomerate Merger: it is a merger in which two or more
companies producing different products are acquired and
merged is known as the conglomerate merger.
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share capital of other companies which remain in existence and
continue their undertakings, but the context in which the term is
used may show that is intended to include such as acquisition.” 5
5
The Halsbury’s Laws of England, Vol. VII(2) para 1461 page 1103
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Objectives of Corporate Amalgamations:
Concept of Acquisition
6
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd.
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Basically the literal meaning of the acquisition is to acquire i.e. to
get hold on, or to attain the power, or buy or purchase something,
or we can also say takeover. So, after taking this into mind we can
make out that acquisition is to buy share of a company and
takeover that company and subsequently get the powers to control
the affairs of the company. And after acquiring the company merge
or amalgamate the acquired company or with the acquired
company and in the process also demerge some of the
undertakings.
What is Acquisition?
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number of persons), a take-over be generally be effected by
agreement with the holders of the majority of the share capital of
the company being acquired.
Where the shares are held by the public generally, the take-over
maybe effected:
1. Friendly takeovers:
7
http://en.wikipedia.org/wiki/Takeover
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private acquisitions are usually friendly. If the shareholders agree
to sell the company, then the board is usually of the same mind or
sufficiently under the orders of the shareholders to cooperate with
the bidder. This point is not relevant to the UK concept of
takeovers, which always involve the acquisition of a public
company.
2. Hostile takeovers:
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The main consequence of a bid being considered hostile is practical
rather than legal. If the board of the target cooperates, the bidder
can conduct extensive due diligence into the affairs of the target
company. It can find out exactly what it is taking on before it
makes a commitment. But a hostile bidder knows about the target
by only the information that is publicly available, and so takes a
greater risk. Also, banks are less willing to back hostile bids with
the loans that are usually needed to finance the takeover. However,
some investors may proceed with hostile takeovers because they
are aware of mismanagement by the board and are trying to force
the issue into public and potentially legal scrutiny.
3. Reverse takeovers:
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in the case of an investing company, depart substantially
from the investing strategy stated in its admission document
or, where no admission document was produced on
admission, depart substantially from the investing strategy
stated in its pre-admission announcement or, depart
substantially from the investing strategy
8
P. Mohana Rao (editor), Mergers and Acquisitions of Companies (2000), New Delhi: Deep &
Deep Publications Pvt. Ltd.
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Appoints Merchant
Banker who Take-over process
administers take-over
process
Indian law:
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(Substantial Acquisition of Shares and Takeover) Regulation, 1997
(SEBI Takeover Code).
The CA Act deals with the power of the company to acquire shares
of another company generally (section 372A), and specifically in
relation to acquiring shares from persons who did not sell or have
not agreed to sell shares held by them, notwithstanding approval
of the scheme or contract for acquisition of shares, by
shareholders owning 90% and over of the shares (section 395). The
company being acquired could be either a public quoted company
or a private limited company.
The SEBI rules could deal with the law relating to substantial
acquisition of shares or control of a public quoted company (listed
9
Gurminder Kaur, Corporate Mergers and Acquisition (2005), New Delhi: Deep & Deep
Publications Pvt. Ltd.
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company) or an unquoted public limited company (unlisted
company) including a foreign registered company, which owns or
control the listed company.
USA Regulations:
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beyond certain prescribed limit. The takeover laws in USA are
statutory regulations.
Advantages:
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Disadvantages:
10
http://en.wikipedia.org/wiki/Takeover
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Acquisition of Shares by a Company of another Company:
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been deleted the new section 372A covers both investment in
shares and as well as also grant of loans and issue of guarantees.
The term loan has been defined to include debentures and any
deposit of money, other than deposit of money, other than deposit
in a banking company.11
11
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd
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Difference between Merger and Acquisition: 12
A merger happens when two firms; often of about the same size,
agree to move forward and exist as a single new company rather
than remain separately owned and operated. This kind of action is
more specifically referred to as a "merger of equals." Mergers are
often financed by a stock swap, in which the stock owners in both
companies receive an equivalent quantity of stock in the new
company. The stocks of both companies are surrendered and new
company stock is issued in its place. On the other hand, when one
company takes over another company and clearly establishes itself
as the new owner, the purchase is called an acquisition. Legally,
the target company ceases to exist, the buyer swallows the
business and the buyer's stock continues to be traded. Acquisition
refers to two unequal companies becoming one and the financing
can involve a cash and debt combination, all cash, stocks, or other
equity of the company.
12
http://en.wikipedia.org/wiki/Mergers_and_acquisitions
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A purchase deal will be called a merger when the CEOs of both the
companies agree that joining together is in the best interest of both
of their companies. When the deal is unfriendly - that is, when the
target company does not want to be purchased, it is regarded as
an acquisition.
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Chapter – 3
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TATA-CORUS Acquistion – Biggest Indian Acquisition:
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Corus was formed from the merger of Koninklijke Hoogovens N.V.
with British Steel Plc on 6 October 1999. It has major integrated
steel plants at Port Talbot, South Wales; Scunthorpe, North
Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and
IJmuiden in the Netherlands. It also has rolling mills situated at
Shotton, North Wales (which manufactures Colorcoat products),
Trostre in Llanelli, Llanwern in Newport, South Wales, Rotherham
and Stocksbridge, South Yorkshire, England, Motherwell, North
Lanarkshire, Scotland, Hayange, France, and Bergen, Norway. In
addition it has tube mills located at Corby, Stockton and
Hartlepool in England and Oosterhout, Arnhem, Zwijndrecht and
Maastricht in the Netherlands. Group turnover for the year to 31
December 2005 was £10.142 billion. Profits were £580 million
before tax and £451 million after tax.
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A war between two giants (TATA Steel and Brazilian steel
maker Companhia Siderúrgica Nacional i.e. CSN) to but
another giant:
In the light of CSN offer Corus announced that it would defer its
extraordinary meeting of shareholders to December 20, 2006 from
December 4, 2006 in order to allow counter offers from TATA steel
and CSN.ABN Amro and Deutsche Bank are backing Tata Steel,
while CSN's advisors are Goldman Sachs, UBS and Barclays
Capital.
Tata Steel Ltd. of India bid top bid to acquire Corus Group PLC of
the United Kingdom at 6.2 billion Pounds ($12.1 billion). In the
auction, Companhia Siderurgica Nacional last bid was 603 Pence
($11.82billion) per share, while Tata Steel Ltd. final bid was 608
Pence per share, 5 Pence higher.
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Finally, on January 31, 2007 TATA Steel acquired the Corus at 6.2
billion pounds ($12.1 billion) in counter to that of $11.82 by CSN
and become the fifth largest producer of steel in the world and
second largest in the Europe.
Corus had been facing tough times and had reported a substantial
decline in profit after tax in the year 2006. Analysts asked whether
the deal would really bring any substantial benefits to Tata Steel.
Moreover, since the acquisition was done through an all cash deal,
analysts said that the acquisition would be a financial burden for
Tata Steel.
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"The financials for this deal [require] high performance levels,
perfect post-deal execution and sustained high steel prices. It is a
risky game and will be okay for Tata as long as the economy is
growing and no major bumps occur. If [these bumps] do occur,
they can become a challenge, and I am reminded of the high
leverage days of the mid-1980s."13
13
Vivek Gupta, Managing Director, AT Kearney (India), in February 2007
14
S. Mukherji, Managing Director, ICICI Securities, in February 2007
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The acquisition by Tata amounted to a total of 608 pence per
ordinary share or ₤6.2 billion (US $12 billion) which was paid in
cash. First of all, the general assumption is that the acquisition
was not cheap for Tata. The price that they paid represents a very
high 49% premium over the closing mid market share price of
Corus on 4 October, 2006 and a premium of over 68% over the
average closing market share price over the twelve month period.
Moreover, since the deal was paid for in cash automatically makes
it more expensive, implying a cash outflow from Tata Steel in the
amount of £1.84 billion.
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Chapter – 4
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Conclusion
Steel prices, raw material supplies and interest costs on the $8-
billion debt that is being raised to fund the deal. Soon he may also
have to deal with the sensitive issue of possible job There is no
doubt that Tata has pulled off a coup — Corus makes nearly four
times more steel than Tata Steel. Together, the combine becomes
the fifth largest producer in the world and the second in Europe.
But to make the most of the deal, Tata has to manage several
variables including cuts in Corus’s manufacturing plants. There
are also the usual sets of integration challenges that come with
such large buyouts. The deal may be done, but the hard work is
just beginning.
The only blip, though, was the way the stock markets reacted. Tata
Steel has lost a billion dollars in market capitalization since it first
announced its intention to buy Corus in October last year. (The
BSE Sensex rose 18 per cent during the same period.) The market
perception is that the Tata Group paid too much for this
acquisition. Several brokerage houses have pointed out that the
deal implies a high enterprise value/ earnings before interest,
taxes, depreciation and amortization (EV/EBITDA) multiple of 9 for
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Corus versus 4.6 for Tata Steel. (L.N. Mittal paid 5.8 times EBITDA
for Arcelor.) Ratan Tata disagrees: “We believe that, looking back in
time, the price today will prove to be one that was worthwhile
because the price of steel companies is likely to be even higher in
the coming year.”
Few will disagree. The Tata Steel managing director is likely to look
for more acquisitions as he aims to increase the company’s total
capacity to 100 mt by 2015. To reach that destination, a lot will
depend on whether the group can make Corus fly. And it may be
more challenging for Mr Tata than flying the F1615.
15
by Pallavi Roy and Mobis Philipose, Making Corus Work, Business Today
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Bibliography
Books:
Web Reference:
www.wikipedia.org
www.legalserviceindia.com
www.manupatra.com
Cases:
W.A. Beardsell & Co. Ltd, Re(1968) 38 Comp Cas 197, 204
Mad.
Reliance Jute Industries Ltd, Re. (1983) 53 Comp Cas 591
Cal
Magazines:
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Pallavi Roy and Mobis Philipose, Making Corus Work,
Business Today
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