Merger transactions include the following steps. Screening and Investigation of Merger Proposal is the first step. Negotiation stage is where bargain is made in order to secure the highest price by the seller and the buyer keen to limit the price of the bid. Exchange ratio of shares between the companies is an important factor in the process of amalgamation.
Merger transactions include the following steps. Screening and Investigation of Merger Proposal is the first step. Negotiation stage is where bargain is made in order to secure the highest price by the seller and the buyer keen to limit the price of the bid. Exchange ratio of shares between the companies is an important factor in the process of amalgamation.
Merger transactions include the following steps. Screening and Investigation of Merger Proposal is the first step. Negotiation stage is where bargain is made in order to secure the highest price by the seller and the buyer keen to limit the price of the bid. Exchange ratio of shares between the companies is an important factor in the process of amalgamation.
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