Steps in Merger Transactions:

Generally the merger transactions include the following

steps
 Screening and Investigation of Merger Proposal :

when there is an intention of acquisition or merger of

other business unit , the primary step is that of screening
and motive needs to be judged against three criteria i.e.,
business fit , management and financial strength. Once
the proposal fits into the strategic motive of the acquirer,
then the proposed acquirer will collect all the relevant
information relating to the target company about share
price movements, earnings , dividends , market share,
management shareholding pattern, gearing , financial
position, benefits from proposed acquisition etc.this form
of investigation will bring out the strength and weakness
of both of one’s own company and the perspective merger
candidate. The acquirer company should not only
consider the benefits to be obtained but also be careful
 about the attendant risks. If the proposal is viable after
through analysis from all angles , then the matter will be
carried further.
 Negotiation stage: is an important stage in which the

bargain is made in order to secure the highest price by

the seller and the acquirer keen to limit the price of the
bid. Before the negotiations start , the seller needs to
decide the minimum price acceptable & the buyer needs
to decide the maximum he is prepared to pay. After the
consideration is decided then the payment terms and
exchange ratio of shares between the companies will be
decided. The exchange ratio is an important factor in the
process of amalgamation. This has to be worked out by
valuing the shares of both, transferor and transferee
company as per noems and method of valuation of
shares. Approved valuer or a firm of Chartered
Accountants will evaluate the shares on the basis of
audited accounts as on the transfer date
 Approval of Proposal by Board of Directors deciding
upon the consideration of the deal and terms of payment,
then the proposal will be put for the Board of Directors
approval
 Approval of shareholders: As per the provisions of

the Company Act, 1956, the shareholders of both

acquirer and seller company hold meetings under the
directions of respective High Court (s) and consider the
scheme of amalgamation. A separate meeting for both
preference and equity shareholder is convened for this
purpose
Approval of Creditors /Financial Institutions/

Banks: Approvals from the constituents for the scheme

of merger and acquisition are required to be sought for
as per the respective agreement / arrangement with each
of them and their interest is considered in drawing up the
sgheme of merger
 Approval of respective High Court (s) : Approval of

respective high courts of seller and acquirer, confirming

The scheme of amalgamation are required.the court shall
issue winding up of the amalgamating company without
dissolution on receipt of reports from the official liquidator
and the Regional Director that the affairs of the
amalgamating company have not been conducted in a
manner prejudicial to the interests of its members or to
public interest
 Approval of Central Government :Declaration of the

central Government on the recommendation made by the

specified Authority under section 72 A of the Income-tax
Act ,if applicable
 Integration Stage : the structural and cultural aspects

of the 2 organizations, if carefully integrated into the new

organization will lead to the successful merger and ensure
that expected benefits of the merger are realized
 ACTIVE MEASURES:The following active measures are

employed after a hostile eakeover bid has been launched

 White Knight : is a company that comes to the rescue
of a firm targeted for a takeover.The white Knight may
make an offer to buy all or part of the target firm on
more favorable terms than the original bidder and
promise not to disassemble the firm or lay off the
management or employees. It may be difficult to find a
bidder willing to agree to such restrictive terms and
some compromise by the target may have to be
entertained. Generally , the search for the white knight
begins immediately the bid is launched.
 White Squire Defence: is similar to the white knight

defence in that the two parties , target firm and white

squire seek to implement a strategy to preserve the
target firm’s independence. This is done by placing assets
or shares in the hands of a friendly firm or investor who is
not interested in acquiring control of the target firm and
will not sell out to a hostile bidder. This is rarely a long
term solution as the squire often sells the shares or
Becomes the grey knight i.e., makes a hostile bid himself
 Greenmail: refers to the payment of a substantial

premium for a significant block of shares in return for an

agreement not to initiate a bid for control of the firm
 Standstill Agreement: occurs when the target firm

reaches a contractual agreement with the potential

bidder that he will not increase his holding in the target
firm for a particular period. The agreement can take
many forms , including the right of first refusal to the
target firm if the bidder sells his shares and a
commitment by the bidder not to increase his holding
beyond a certain percentage in return for a fee. Standstill
agreements are frequently accompanied by greenmail
and are a clear example of the management
entrenchment hypothesis referred to earlier
 Capital Structure Change: can be adopted by the

target firm when an hostile takeover has been initiated

and are an extension of shark repellent tactics discussed
Of the preventive measures. The firm may issue new
stock and place in the hands of a friendly shareholder
( white squire) .It may buy back shares so as to ensure
that they are not purchased by the hostile bidder or
assume more debt in the form of bonds bank loan
 Litigation: is one of the most common anti-takeover

measures and is often used as a delaying tactic. The

temporary halting of a takeover can give the target firm
time to mount more effective defence or allow the bidding
firm to improve its offer. It may also allow other bidders
to enter the process or a white knight to be courted
 The Pac-man defence: is called after the video game

in which characters try to eat each other before they are

eaten themselves, i.e., thr firm under attack from hostile
bidder turns the table by bidding for the aggressor
 Overgearing: by increasing the amount of debt makes

the company less attractive to a predator. The increase

In the borrowing is a defensive policy that is sometimes
adopted at the time of a takeover bid or in a situation
where a company feels vulnerable to a takeover bid
 People Pill: Sometimes , in the event of a takeover ,

the entire management team threatens to resign. The

threat is specially useful if it is a good management losing
it could seriously effect the company’s performance ,
hence an invader may not really attempt a takeover