MERGERS AND ACQUISITIONS A Merger is a combination of two or more firms in which only one firm would survive and

the other would cease to exist, its assets/liabilities being taken over by the surviving firm. In a merger, one or more companies may merge with an existing company or they may combine to form a new company. It signifies the transfer of all assets and liabilities of one or more existing companies to another existing or new company. Example: Rin and Surf excel, Objectives The main purpose of merges is to achieve the advantage of fusion and synergy through expansion and diversification. Schemes of Merger/ Amalgamation The main content of the scheme includes: Description of the transfer and the transferee company and the business of the transferor. Their authorized, issued and subscribed capita. Change of name, object clause and accounting year. Protection of employment. Dividend position and prospects. Management: Board of directors, their number and participation of transferee companys directors on the board. Application under section 391 and 394 of the companys act, 1956, to get high courts approval. Expenses of amalgamation. Effective date of amalgamation.

Essential features of scheme of Amalgamation 1. Determination of transfer Date 2. Determination of Effective date:

By which all the required approvals under various status, viz, the companies Act 1956, the companies Rules 1959, Income Tax act 1961The effective date is important for income tax purposes. 3. Approvals for the scheme 4. Approval from shareholders 5. Approval from creditors/ financial institutions/ Banks 6. Approval from Respective High courts STEP-WISE PROCEDURE 1. Object Clause: The first step is to examine the object clauses of the memorandum of association as to ascertain whether the power of amalgamation exists or not. 2. Preparation: Of the scheme of amalgamation on the lines explained earlier. 3. Meetings/ Information: Holding of meetings of the board of directors of both the transferor and the transferee companies 4. Application for Amalgamation 5. Holding of Meeting: The next step is to hold separate meetings of the shareholders and creditors of the company to seek approval to the scheme. 6. Report of Chairman to the court: 7. Presenting Petition before the Court: The company must within seven days of the filing of the report by the chairman, present a petition to the court. 8. Application for Direction: If necessary, an application for direction of the court 9. Certificate:

A certificate copy of the order of the court dissolving the amalgamating company or giving approval to the scheme of merger, should be filed with the Registrar of companies. 10. Court Order: A copy of the order of the court should be attached to the memorandum and articles of association of the transferee company FINANCIAL FRAMEWORK The financial framework of a merger decision covers three inter-related aspects: 1. Determining the firms value 2. Financing techniques in merger 3. Analysis of Merger as a capital budgeting decision 1. Determining the firms value: The quantitative factor relates to a. The value of the assets b. The earnings of the firm. Based on the assets values and earnings, these factors include

Book Value Appraisal Value Market Value Earnings per Share

2. Financing techniques in merger After the value of firm has been determined on the basis of the preceding analysis, the next step is the choice of the method of payment of the acquired firm.

Ordinary share Financing Debt and Preference shares financing Deferred Payment plan Tender Offer: It involves a bid by the acquiring firm for controlling interest in the acquired firm.

3. Analysis of Merger as a capital budgeting decision The decision criterion is to go for the merger if the net present value, NPV, is positive; the decision would be against the merger in the event of the NPV being negative. TAX ASPECTS OF AMALGATION, MERGER

Tax Concession to Amalgamated Company Tax Concession to Amalgamating Company

Tax Concession to Amalgamated Company 1. Carry Forward and Set off of Business Losses and unabsorbed Depreciation: 2. Expenditure on scientific research 3. Expenditure on Acquisition of patent Rights or Copy Rights 4. Expenditure on Know-how 5. Expenditure for Obtaining Licence to Operate Telecommunication Services 6. Preliminary Expenses 7. Expenditure on Prospecting of certain Minerals 8. Capital Expenditure on Family Planning 9. Bad Debts Tax Concession to Amalgamating Company 1. Free of Capital Gains Tax Where there is a transfer of any capital asset by an amalgamating company to any Indian amalgamated company, such transfer will not be considered as a transfer for the purpose of capital gain. 2. Free of Gift- Tax Where there is a transfer of any asset by an Indian amalgamating company, gift tax will not be attracted ACQUISITIONS/ TAKEOVERS Takeover implies acquisition of controlling interest in a company by another company. It does not lead to the dissolution of the company whose shares are being acquired.

Eg. Cattrepiller acquired Hindusthan Motors Vodafone acquired Hutch Takeovers can assume three forms: Negotiated/ Friendly Open market/ Hostile and Bail out

LISTING AGREEMENT The takeover of companies listed on stock exchange is Regulated by Clause 40-A Continued listing Clause40-B- When takeover offer is made. Conditions for Continued listing
1. When a person acquires 5 % or more of voting rights, should comply (the company and

acquirer) with SEBI Takeover Code.

2. When a person acquires 15 % or more of voting rights, should comply with SEBI

Takeover Code. Or has less than 15 % but want to acquire more than 15 % should also comply with the same GENERAL OBLIGATION OF THE MERCHANT BANKER Before a public announcement of the offer is made, the merchant banker should ensure that

The acquirer is able to implement the offer The provision relating to the escrow account has been made Firm arrangement for funds and money, for payment through verifiable means The public announcement of offer is made in terms of the regulations.

Merchant Banker must ensure

That the public announcement and the letter of offer are filed with the SEBI The content of the public announcement of offer as well as the letter of offer are true, fair, and adequate.

Compliance with the regulations and any other laws as may be applicable in this regard.

CREDIT SYNDICATION SERVICES Merchant bankers provide various services towards syndication of loans. The services may be either loan sought for long term fixed capital or of working capital funds. Objectives Arranging medium and long term funds for long term fixed capital and working capital fund needs The merchant banker ensure due compliance with the formalities of the financial institution, banks and regulatory authority. They are: 1. General Information 2. Promoter information 3. Company information 4. Project profile information 5. Project cost information 6. Project financing information 7. Project marketing information 8. Cash flow information 9. Other information Appraisal of Project 1. Technical appraisal 2. Ecological appraisal 3. Financial appraisals 4. Promoters contribution 5. Economic appraisals 6. Commercial appraisals 7. Managerial appraisals

8. Arrangement of Loan Sanction 9. Compliance for Loan Disbursement MUTUAL FUNDS A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Mutual Fund Operation Flow Chart

Organization of a Mutual Fund The Organization of a Mutual Fund is how the mutual funds are controlled. A number of entities are involved in the Organization of a Mutual Fund. This helps in the proper management of the mutual fund portfolio. The Organization of a Mutual Fund contains entities such as

Mutual Fund Shareholders: The Mutual Fund Shareholders, like the other share holders have the right to vote. The voting rights include, the right to elect directors during the directorial elections, voting right to approve the alterations investment advisory contract pertaining to the fund and provide approval for changing investment objectives or policies. Board of directors: The Board of directors supervise the functional activities, which include approval of the contract Asset Management Company and other various service providers. Investment management company or Asset Management Company: This body handles the mutual fund portfolio as per the objectives and policies mentioned in the prospectus of the mutual funds. Custodians: The custodians protect the portfolio securities. Mostly qualified bank custodians are used for mutual funds. Transfer Agents: The transfer agent for the purpose of maintaining records and similar functions. The maintenance of the shareholder's accounts, calculation of dividends to the be disbursed, sending information to the shareholders about the account statements, notices, and income tax information. Some of the transfer agent sends information to the share holders about the shareholder transactions and account balances. They also maintain customer service departments in order the cater to the queries of the shareholders. SEBI: The primary aim of the Securities Exchange Board of India is to protect the interest of the mutual fund investors. The SEBI has formulated several policies for better functioning and controls the mutual funds. In the year 1993, SEBI issued guidelines pertaining to the mutual funds. All mutual funds, private sector and public sector are regulated by the guidelines of the SEBI. The Asset Management Company managing the funds has to be approved by the SEBI.

Advantages of Mutual Funds Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated Types of Mutual Fund Schemes 1. By Structure Open Ended Schemes Close Ended Schemes

2. By Investment Objectives Growth Schemes Income Schemes Balance Schemes Money Market Schemes

3. Other Schemes Tax Saving Schemes