MERGER OF A COMPANY: A CASE STUDY INTRODUCTION The research paper briefly talks about mergers of a company at the corporate

world. The merits of mergers are highlighted. It has taken the case study of Mr.Laxmi Niwas Mittal, the global steel czar and has focused the bottlenecks involved in acquisition of a Luxembourg based Arcelor steel company. It highlighted the importance of multi-cultural skills for the global business leaders. It focused at the Indias Competitive Advantages. At the end it has summed up with the strengths of Indian economy and appealed all Indians to stay in India itself because the returns outnumber the investments by being in India. In the present dynamic economy mergers are playing significant role. The rationale behind the mergers is to acquire the market leadership, financial benefits, new product or brand, diversifying the portfolio and as a tax planning and finally to increase the stakeholders wealth. As it is a well known proverb unity is strength the corporate even they are into different business are merging and doing business together to enhance the profitability. The process of merger generally takes a long period, as it involves the taking of approval of shareholders, creditors, and other government authorities and the High Court. As the Mergers involve pooling of resources of one company with the other companies need professional guidance to accomplish the process. As it involves drafting of scheme of amalgamation, planning of tax issues and treatment of human resources, professionals guidance by Company Secretaries, Lawyers and chartered accountants is essential. When a piece of a log is subjected to severe pressure becomes charcoal. And if it is subjected to extreme pressure results in a diamond. Entrepreneurs are made from men like that. Now days, there is too much talk of Indian companies taking over the companies in abroad. The Tata Steels take over of Corus has hit the headlines. It was a very bold initiative by Ratan Tata. There was a talk of paying too much price for the acquisition of Corus by the critics. Over all it has demonstrated and displayed the leadership capabilities of Indian business leaders. Once upon a time when Lord Swaraj Paul made an attempt to take over an Indian company it was treated a hostile bid. It hit national headlines then. Many global MNCs used to take over Indian companies in the past. During the preliberalisation era foreign companies were on the offensive mode to take over Indian companies. In post liberalization, things have changed for

better for the Indian industry. The Indian economy has looked up and is becoming a robust economy. As a result, the Indian industry changed its stance from being defensive to offensive. In this context, let us briefly define what is merger and take over. Merger refers to the process of two business units becoming one. On the other hand, take over refers to the process of taking over of one unit by a relatively stronger business unit.

WHAT IS MERGER A business grows over time as the utility of its products and services are recognized. It also grows through an inorganic process, symbolized by an instantaneous expansion in work force, customers, infrastructure resources and thereby an overall increase in the revenues and profits of the entity. When the companies merge/ combine/ acquired, the cost of the company relative to theoretically the same revenue stream is lowered, thus increasing profit. Merging a company also provides varied pool of resources of both the combining companies along with a larger share in the market, wherein the resources can be exercised. It facilitates better use of complimentary resources. It may take the form of revenue enhancement (to generate more revenue than its two predecessor standalone companies would be able to generate) and cost savings (to reduce or eliminate expenses associated with running a business). A merger can be defined as the fusion or absorption of one company by another. It may also be understood as an arrangement whereby the assets of two company under the control of one company, which may or may not be one of the original two companies. The term mergers refer to the consolidation of companies. It is the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. A merger is a combination of two companies to form a new company, which further can be defined to mean unification of two players into a single entity, and acquisitions are situations where one player buys out the other to combine the bought entity with itself. In GENERAL RADIO & APPLIANCES CO. LTD. V. KHADER1 it was held that the amalgamation of M/s General Radio & Appliances (P) Ltd., 1st appellant with the 2nd appellant company is involuntary one, which has been brought into being on the basis of the order of the High Court of Bombay made under ss. 391 and 394 of the Companies Act. Mergers can be in form of a purchase, where one business buys another or a management buyout, where the management buys the business from its owners or can be of the types as mentioned under the following heads:

Horizontal merger- Two companies that are in direct competition and share the same product lines and markets i.e. it results in the consolidation of firms that are direct rivals. E.g. Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls Royce and Lamborghini

(1986) SC 2 656

Vertical merger- A customer and company or a supplier and company i.e. merger of firms that have actual or potential buyer-seller relationship e.g. Ford- Bendix, Time Warner-TBS.

Conglomerate merger- generally a merger between companies which do not have any common business areas or no common relationship of any kind. Consolidated firma may sell related products or share marketing and distribution channels or production processes. Such kind of merger may be broadly classified into following:

Product-extension merger - Conglomerate mergers which involves companies selling different but related products in the same market or sells non-competing products and use same marketing channels of production process. E.g. Phillip Morris-Kraft, PepsiCo- Pizza Hut, Proctor and Gamble and Clorox

How is merger different from acquisition Although the terms merger and acquisition are often uttered in the same breath and used as though they were synonymous, they mean slightly different things. The difference amongst the two is spelled as below: i. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. While in the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.

ii. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

iii. Whether the deal results in a merger or an acquisition essentially depends on whether it is friendly or unfriendly and the way it is announced. In other words, the main difference lies in how the purchase is communicated to and received by the target company's board of directors, shareholders and employees.

iv. In case of mergers the stocks of both the companies are surrendered, while new stocks are issued afresh. While no such fresh issues are required in case of acquisition as the buyer company swallows the business of the target company, which ceases to exist.

v. Mergers are almost amongst the companies of equal type whereas acquisition involves coming together of one big and small company.

vi. At times mergers give ways to acquisitions. This happens when two entities first decide to merge and when the deal goes awry during the negotiation process the stronger company ends up with acquiring the weaker one.

Laws relating to mergers The legal process of mergers is dealt under the following provisions of law in India:

a) Indian Companies Act, 1956- the provisions for mergers are dealt under Sections 391 to 394 of the Act. The four provisions are as follows

391. Power to compromise or make arrangements with creditors and members. (1) Where a compromise or arrangement is proposed (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them,the 1[Tribunal] may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of

creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the 1[Tribunal] directs. (2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed 2[under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the 1[Tribunal], be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company: Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditors report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like. (3) An order made by the Tribunal under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made. (6) The Tribunal may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the Tribunal thinks fit, until the application is finally disposed of.

392. Power of Tribunal to enforce compromise and arrangement.(1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it (a) shall have power to supervise the carrying out of the compromise or an arrangement; and

(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies (Amendment) Act, 2001 sanctioning a compromise or an arrangement.

Section 393 of the Act provides for requirement of sharing the information as to compromises or arrangements with creditors and members by calling a meeting of creditors or any class of creditors, or of members or any class of members, under section 391 as the case may be.

Section 394 of the Act provides for provisions for facilitating reconstruction and amalgamation of companies.

b) The Income Tax Act,1961 [Section 2(1A)]defines amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company, in such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company.

c) The Competition Act, 2002 regulates the various forms of business combinations through Competition Commission of India. Under the Act, no person or enterprise shall enter into a combination, in the form of an acquisition, merger or amalgamation, which causes or is likely to cause an appreciable adverse effect on competition in the relevant market and such a combination shall be void. Enterprises intending to enter into a combination may give notice to the Commission, but this notification is voluntary. But, all combinations do not call for scrutiny unless the resulting combination exceeds the threshold limits in terms of assets or turnover as

specified by the Competition Commission of India. The Commission while regulating a 'combination' shall consider the following factors:-

a. Actual and potential competition through imports; b. Extent of entry barriers into the market; c. Level of combination in the market; d. Degree of countervailing power in the market; e. Possibility of the combination to significantly and substantially increase prices or profits; f. Extent of effective competition likely to sustain in a market; g. Availability of substitutes before and after the combination; h. Market share of the parties to the combination individually and as a combination; i. Possibility of the combination to remove the vigorous and effective competitor or competition in the market; j. Nature and extent of vertical integration in the market; k. Nature and extent of innovation; l. Whether the benefits of the combinations outweigh the adverse impact of the combination.

Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects also the following provisions of the Act, deals with mergers of the company:-

Section 5 of the Competition Act, 2002 deals with Combinations which defines combination by reference to assets and turnover exclusively in India and in India and outside India.

Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.

d) Foreign Exchange Management Act, 1999 The foreign exchange laws relating to issuance and allotment of shares to foreign entities are contained in The Foreign Exchange Management (Transfer or Issue of Security by a person residing out of India) Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May, 2000. These regulations provide general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India or recording in its books any transfer of security from or to such person. RBI has issued detailed guidelines on foreign investment in India vide Foreign Direct Investment Scheme contained in Schedule 1 of said regulation.

e) SEBI Takeover Code 1994 SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15% up to 55%, provided the acquirer does not acquire more than 5% of shares or voting rights of the target company in any financial year. [Regulation 11(1) of the SEBI Takeover Regulations] However, acquisition of shares or voting rights beyond 26% would apparently attract the notification procedure under the Act. It should be clarified that notification to CCI will not be required for consolidation of shares or voting rights permitted under the SEBI Takeover Regulations. Similarly the acquirer who has already acquired control of a company (say a listed company), after adhering to all requirements of SEBI Takeover Regulations and also the Act, should be exempted from the Act for further acquisition of shares or voting rights in the same company.

MERITS OF MERGERS Merger has many merits such as Competitive edge in the market. There is synergy in this and one plus one is three, six or just more than that. The raw material can be purchased in bulk quantity thereby reducing the cost of production. When the cost of the product or service is reduced, the company has better chances to have more profits as well as it can compete with others by slashing down the prices. In a nut shell, there is 'economies of scale' and increased economic efficiency. There is increase in market share in the same segment or sector thereby having better brand image and good will for the company. Increased benefits to the shareholder value. The benefits so gained are passed on to the shareholders thereby increasing their value.

 There could be tax benefits to the company in few cases. Consolidation in the sector wise and it eliminates the unhealthy small ti me players who are weak and cannot survive in the business. Many other strategic advantages. SCOPE OF MERGER The scope of merger in Indian context can be stated with reference to some of the decided cases which are as follows: No identity or unison of objectives of transferor and transferee companies

One of the requirements of the companies Act 1956 is that a company can pursue only those objects which are intra vires to the MOA, but it is not essential in the case of merger. Companies carrying entirely dis-similar business can merge and scheme of amalgamation of such companies can be sanctioned by the court, even though object of both the companies are not similar.2 Both companies may make application

In normal case, every company involved in a scheme should make an application to the respective High Court under whose jurisdiction the registered office of such company is situated. But where the principal office of both the registered offices is under the jurisdiction of the same High Court, joint application may be made.3 Role of court is supervisory

Basically court is having a supervisory jurisdiction but it is not a rubber stamp. If the scheme is not fair the court can refuse. Totality of the facts and circumstances has to keep in mind before sanctioning the scheme.

2 3

Re PMP Auto Industries (1994) 80 Comp. case 291 (Bom). Tarun Overseas Pvt. Ltd. (1994) 14 CLA 279 (Del).

CASE STUDY OF LAXMI NIWAS MITTAL: There is one global Indian who thrived in business with a strategy of series of acquisitions. He is none other than Mr.Laxmi Niwas Mittal. He was born in Sadulpur village, in the Churu district of Rajasthan, India. He graduated in Commerce from St.Xaviers College in Kolkata, India. He was born in Steel family. Due to the differences with his father and brothers he left India and branched out by doing business independently across the seas. His first attempt was in Indonesia where he acquired a steel company which is related to wire rod manufacturing and turned around and succeeded. One success led to another success and he began acquiring steel plants all over the world. He can also be called Take Over Tycoon. There are different ways and means by which any company can grow such as organic growth, mergers, strategic alliances and acquisitions. The secret to success for Mittal is series of acquisitions. He took over the companies at cheaper price which are not doing well and developed and turned around the same. Besides, he is an excellent negotiator, communicator and has deep understanding of cultural differences across the world. He always believed in his core strength steel and never believed in unrelated diversification. As a result LN Mittal is called as a Steel Czar and as crowned as the Carnegie of Steel. In Oct 2004 Mittal acquired International Steel Group of the US for $4.5 billion and became the largest steel producer in the world surpassing the global steel leader Arcelor. It indicates his business acumen, gut and intuition. And the mother of all acquisitions is the attempt to acquire Luxembourg-based Arcelor Steel. Mittal Steel made a daring $ 33 billion offer to take over its rival Arcelor. It was the boldest offer by any NRI to be made. There were lots of practical problems involved during acquisition. The French government went to the extent of protecting their company and adopted various techniques to prevent the acquisition. Mr. Mittal pursued up to the hilt. He allayed the apprehensions of the employees and also that of shareholders of Arcelor and after prolonged battle the company was acquired and the transition has been made smooth. Ultimately he created 100 million tonne steel company. In one situation, the chopper in which LN Mittal was traveling towards Paris was force landed by telling them that the chopper entered the restricted area. The captain of the chopper was so upset that he resigned to avoid such pressures. Then again Arcelor tried to negotiate the deal with a Russian

Steel giant Severstal who was one of its competitors in order to checkmate Mittal Steel. It was the toughest job for the Mr.Mittal to get the merger process evened out. Ultimately he succeeded in his bid and has become the President and CEO for Arcelor Mittal. In the confrontation between the stream and the rock, the stream always wins not through strength but by perseverance, quoted H.Jackson Brown, a noted Author. Now LN Mittal is the only Indian who controls any particular sector i.e. Steel sector in the world. No other Indian in the earth controls any particular sector but it has been made possible only for Mr.Mittal because of his passion and perseverance to become number uno steel czar in the world.

MULTI-CULTURAL SKILLS: The global scenario has changed drastically especially after the liberalization and privatization in India. The rapid growing technology has made the globe smaller. People began understanding, respecting and adopting the cultures of other countries. At the global level it is essential to focus on multicultural skills. The cultural gap amongst all the countries is getting narrowed down. And there are more efforts and avenues to grasp various cultural diversities across the world. Many companies across the world are coming to India and setting up their shops. It demonstrates and displays the strength of the Indian economy. In the past we have seen global MNCs and now we are witnessing Indian MNCs shopping across the globe and acquiring number of strategically significant companies. In the past Indian companies fell prey to global predators and now there is a U turn where Indian companies have turned out to be predators. INDIAS COMPETITIVE ADVANTAGE: India has much inherent strength as a result the Indian economy is all set to conquer the world. Presently Indian economy is impacted by US economy and whenever there are changes in the American economy the spillover is felt across Asian markets. And in the near future Indian economy will be independent and will be shielded from American economy. Below are the few competitive advantages India has:

 Gateway to international markets in SAARC countries. Well developed research and development (R&D) infrastructure. Largest resources of untapped natural resources. Worlds largest democracy. Information technology base, in terms of both software and hardware. Technical and marketing expertise. English as the preferred business language. A vibrant capital market with 25 stock exchanges with over 9,000 listed companies. The largest supplier of cost-effective technical and non-technical manpower. Conducive environment for foreign investments by providing freedom of entry, investments, location, choice of technology and import/exports. A well-organized judicial system with a hierarchy of courts. Legal protection for intellectual property rights. A transparent approach for promoting domestic and foreign investment. Declining share of agriculture and allied industries in the GDP. The Economic Survey 2000 -01 reveals that the contribution of services sector to the GDP is 40 per cent whereas agriculture and industry contribute 30 per cent. Increased investments in the priority and high growth sectors such as software, electronics, food processing, oil and gas, power, electronics and telecommunications, chemicals, electrical equipment, food processing etc., A well organized banking system with a network of 63,000 branches supported by a number of national and state-level financial institutions.

 Offers a large market (middle class population of over 25 to 35 crore with increasing purchasing power). Current account convertibility and capital account convertibility for foreign investors. Increase in the number of joint ventures or wholly-owned subsidiaries most of the domestic companies consolidated around their area of core competence by typing up with foreign companies to acquire new technologies, management expertise and access to foreign markets. Deregulation of interest rates with a greater freedom to banks to assess credit requirements. Large and solid infrastructure throughout the country. Simplified systems for administration in government departments. Special investment and tax incentives for exports and certain sectors such as power, electronics and software. Lower tariffs for trade. A transparent approach for promoting domestic and foreign investment. Significantly large manufacturing capabilities through latest technologies.

CONCLUSION The Indian economy is bullish with the GDP growing and inflation is within the healthy limits. Indians need not to go overseas to work. Rather they should work with in India itself so as to make Indian economy more vibrant. There are plenty of opportunities with in India itself. The foreign countries are getting more benefits by making use of Indian talent and expertise. What we get in return is far lesser than what we Indians invest in terms of abilities and capabilities to other countries. It is time Indians realized their inherent strengths and stayed in India itself.

India has the highest percentage of young productive population in the world where as the population of China is ageing. Since there is productive population and strong and huge reservoir of human resources, India is set to become a developed country much before 2020 and will become a Super Power in the world by 2050. The dream is not what you see in sleep. Dream is the thing which does not let you sleep.

BIBLIOGRAPHY
1. Jhunjhunwala, Bharat, Protectionism, Free Market and Global Regulator, Business Line, August 27, 2003. 2. Maitra, Neelanjan, Merger Control Under the New Competition Bill, CLC Vol. 2 p.701 (Journal) 3. Ramaya, A., Guide to Companies Act (15th ed.), Wadhwa & Co 4. http://legalserviceindia.com/article/l463-Laws-Regulating-Mergers-&-Acquisition-In-India.html

5. http://legalserviceindia.com/articles/amer.htm 6.www.whereincity.com/articles/legal/7085.html what are the legal steps involved in merging a company 7.http://sawaal.ibibo.com/personal-finance-and-tax/what-advantages-disadvantages-mergers