Merger Pro

CENTRAL UNIVERSITY OF SOUTH BIHAR
Project-Topic
“Meaning and Concept of Merger and Acquisition”
Submitted To Course Instructor Submitted By Student
Mr. Mani Pratap Amitesh-Tejaswi

Assistant Professor, Law BA.LLB.(Hons)
School Of Law & Governance IXth Semester
Subject- Merger & Acquisition Vth Year
Course Code -Law 506 Enrollment No.
Continuous Assessment-II CUSB1613125060
Page 1 of 29
CONTENTS
 Introduction
 History of Merger & Acquisition
 Need for Merger & Acquisition
 Definitions of Merger & Acquisition
 Meaning & Concept of Merger & Acquisition
 Types of Mergers
 Definitions of Acquisition
 Meaning & Concept of Acquisition
 Kinds of Acquisition
 Distinction between Merger & Acquisition
 Motives behind Merger & Acquisition
 Advantages & Disadvantages of Merger & Acquisition
 Success & Failure of Merger & Acquisition
 Some examples of Merger & Acquisition
 Merger of Lenovo & IBM December 2004
 Conclusion
 Bibliography
Page 2 of 29
ACKNOWLEDGEMENT
At this point of time I would like to express my gratitude to all those who gave me their
support to complete this project.
I am grateful to my Merger & Acquisition Law teacher, who is Mr. Mani Pratap for giving
me permission to commence this project in the first instance and to do necessary study and
research. I want to thank law faculty members and other faculty members for all their
professional advice, value added time, effort and enterprise help, support, interest and
valuable hints that encouraged me to go ahead with my project.
I am deeply indebted to my colleagues for their meticulous planning, layout, presentation

and above all for their consideration and time.
My heartfelt appreciation also goes to seniors and my classmate for their stimulating
suggestions and encouragement which helped me at each level of my research and in
writing of this project.
Especially, I would like to give my special thanks to my parents, family members and god
whose patient love enabled me to complete this project.
I have tried my best to enclose practical approach of meaning and concept of merger and
acquisition and also theoretical approach to my project.
Amitesh-Tejaswi
(Signature of the Student)
Page 3 of 29
RESEARCH METHODOLOGY
Method of Research
The researcher has adopted a purely doctrinal method of research. The researcher has
made extensive use of the available resources at library of the Central University of South
Bihar and also the internet sources.
Scope and Limitations
Though the study of this topic is an immense project and pages can be written over the
topic but due to certain restrictions and limitations the researcher has not been able to
deal with the topic in great detail.
Sources of Data:
The following secondary sources of data have been used in the project-
1. Cases
2. Books
3. Journals
Method of Writing:
The method of writing followed in the course of this research paper is primarily
analytical.
Mode of Citation
The researcher has followed the Indian Law Institute of citation throughout the course of
this research paper.
Page 4 of 29
Introduction: - An entrepreneur may grow its business either by internal expansion or by external
expansion. In case of internal expansion a firm grows gradually over time, through acquisition of
new assets, replacement of the technologically obsolete equipments etc. But in external expansion,
a firm acquires a running business and grows overnight through corporate combinations. These
combinations are often in the form mergers, acquisitions, amalgamations and takeovers. Mergers
and Acquisitions are now a critical part of the fabric of doing business and are deeply ingrained in
the business strategy world over.
The global financial services industry has also experienced merger waves mainly due to severe
competition which puts focus on economies of scale, cost efficiency, and profitability and the “too
big to fail” principle followed by the authorities. This project aims to study the impact of M&As
on the Indian banking industry.
During the last two decades, the Indian banking sector has undergone a metamorphic change
following the economic reform process initiated by the Government of India. The forces of
globalization, deregulation and liberalization unleashed by the economic reforms, set in motion in
1991, have transformed the face of the Indian financial services sector landscape , including that
of the Indian banking sector in a big way. There has been a paradigm shift from a regulated to a
deregulated environment. The economic liberalization and deregulation measures initiated in the
1990s have opened up the doors to foreign competition and made the markets more efficient and
competitive. Continuous innovation and keeping pace with technological change have become a
must for survival of the firms in the financial services industry including the banking sector. The
developments in the Indian banking sector have witnessed quite a few mergers and acquisitions
(M&A s).1
The Narsimham Committee report in August 1991 highlighted the need for financial sector reforms
and fostering competitive spirit in the Indian banking sector. In 1997, a second committee was set
(under M. Narsimham) to specifically suggested mergers among strong banks both in the public
and private sectors.
1
Mergers & Acquisitions in India, Available at: http://www.nishithdesai.com (last visited on December 17, 2020).
Page 5 of 29
Since the onset of reforms in 1990, according to RBI report, 22 bank amalgamations, have taken
place in India (up to 2007). While, the amalgamations of Indian banks were mostly driven by weak
financials, in the post 1999 period there have been mergers between healthy banks prompted by
business and commercial considerations.
History of Merger & Acquisition
Merger and acquisition activity in the United States has typically run in cycles, with peaks
coinciding with periods of strong business growth. U.S. merger activity has been marked by five
prominent waves: one around the turn of the twentieth century, the second peaking in 1929, the
third in the latter half of the 1960s, the fourth in the first half of the 1980s, and the fifth in the latter
half of the 1990s.
This last peak, in the final years of the twentieth century, brought very high levels of merger
activity. Bolstered by a strong stock market, businesses merged at an unprecedented rate. The total
dollar volume of mergers increased throughout the 1990s, setting new records each year from 1994
to 1999. Many of the acquisitions involved huge companies and enormous dollar amounts. Disney
acquired ABC Capital Cities z acquired Citicorp for $72.6 billion, Nation Bank acquired Bank of
America for $61.6 billion and Daimler-Benz acquired Chrysler for $39.5 billion.2
Need for Mergers & Acquisitions:-
There are many reasons or factors that motivate companies to go for mergers and acquisitions such
as growth, synergy, diversification etc.
1. Growth: One of the most common reason for mergers is growth. There are two broadways a
firm can grow. The first is through internal growth. This can be slow and ineffective if a firm is
seeking to take advantage of a window of opportunity in which it has a short-term advantage over
competitors. The faster alternative is to merge and acquire the necessary resources to achieve
competitive goals.3
2
Financial Performance Before and After Mergers and Acquisitions of the Selected Indian Companies. Available at:
http://shodhganga.inflibnet.ac.in/bitstream/ (last visited on December 17, 2020)
3
Ibid
Page 6 of 29
Even though bidding firms will pay a premium to acquire resources through mergers, this total
cost is not necessarily more expensive than internal growth, in which the firm has to incur all of
the costs that the normal trial and error process may impose. While there are exceptions, in the
vast majority of cases growth through mergers and acquisitions is significantly faster than through
internal means. Mergers can give the acquiring company an opportunity to grow market share
without having to really earn it by doing the work themselves - instead, they buy a competitor's
business for a price. Usually, these are called horizontal mergers. For example, a beer company
may choose to buy out a smaller competing brewery, enabling the smaller company to make more
beer and sell more to its brand-loyal customers.4
Example- RPG group had a turnover of only Rs. 80 crores in 1979, which has increased to about
Rs.5600 crores in1996. This phenomenal growth was due to the acquisitions of several companies
by the RPG group. Some of the companies acquired are Asian Cables, Calcutta Electricity Supply
and Company, etc.
2. Synergy: Another commonly cited reason for mergers is the pursuit of synergistic benefits. The
most commonly used word in Mergers & Acquisitions is synergy, which is the idea of combining
business activities, for increasing performance and reducing the costs. Essentially, a business will
attempt to merge with another business that has complementary strengths and weaknesses. This is
the new financial math that shows that 1 + 1 = 3. That is, as the equation shows, the combination
of two firms will yield a more valuable entity than the value of the sum of the two firms if they
were operating independently.5
 Value (A + B) > Value (A) + Value (B)
Although many merger partners cite synergy as the motive for their transaction, synergistic gains
are often hard to realize. There are two types of synergy one is derived from cost economies and
other one is derived from revenue enhancement. Cost economies are the easier to achieve because
they often involve eliminating duplicate cost factors such as redundant personnel and overhead.6
4
Rabi Naryan Kar & Minakshi, Merger Acquisitions & Corporate Restructuring, P-117 (Taxmann, New-Delhi, 3rd
Edn., 2017)
5
Ibid at 118
6
Page 7 of 29
When such synergies are realized, the merged company generally has lower per-unit costs.
Revenue enhancing synergy is more difficult to predict and to achieve. An example would be a
situation where one company’s capability, such as research process, is combined with another
company’s capability, such as marketing skills, to significantly increase the combined revenues.
3. Diversification : Other reasons for mergers and acquisitions include diversification. A company
that merges to diversify may acquire another company engaged in unrelated industry in order to
reduce the impact of a particular industry's performance on its profitability. The track record of
diversifying mergers is generally poor with a few notable exceptions. A few firms, such as General
Electric, seem to be able to grow and enhance shareholders wealth while diversifying. However,
this is the exception rather than a norm. Diversification may be successful, but it needs more skill
and infrastructure than some firms have.7
4. Economies of scale: Yes, size matters. Whether it's purchasing stationery or a new corporate it
system, a bigger company placing the orders can save more on costs. Mergers also translate into
improved purchasing power to buy equipment or office supplies - when placing larger orders,
companies have a greater ability to negotiate prices with their suppliers. This refers to the fact that
the combined company can often reduce duplicate departments or operations, lowering the costs
of the company relative to theoretically the same revenue stream, thus increasing profit.8
5. Increase Market Share & Revenue: This reason assumes that the company will be absorbing
a major competitor and increasing its power (by capturing increased market share) to set prices.
Companies buy companies to reach new markets and grow revenues and earnings. A merge may
expand two companies' marketing and distribution, giving them new sales opportunities. A merger
can also improve a company's standing in the investment community: bigger firms often have an
easier time raising capital than smaller ones. Example-Premier and Apollo Tyres,9
7
Corporate Finance Institute, available at: https://corporatefinanceinstitute.com/resources/knowledge/deals/mergers-
acquisitions-ma/ (Last visited on December 17, 2020).
8
9
Edn., 2017)
Page 8 of 29
6. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the
distributors, a business can eliminate a level of costs. If a company buys out one of its suppliers, it
is able to save on the margins that the supplier was previously adding to its costs; this is known
as a vertical merger. If a company buys out a distributor; it may be able to sale its products at a
lower cost.10
7. Eliminate Competition: Many mergers and acquisitions deals allow the acquirer to eliminate
future competition and gain a larger market share in its product's market. The downside of this is
that a large premium is usually required to convince the target company's shareholders to accept
the offer. It is not uncommon for the acquiring company's shareholders to sell their shares and
push the price lower in response to the company paying too much for the target company.
8. Acquiring new technology: To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller company with
unique technologies, a large company can maintain or develop a competitive edge and vice versa.11
9. Procurement of production facilities: Procurement of production facilities may be the reason
for acquiring company to go for mergers and acquisition. It is a kind of backward integration.
Acquiring Firms will take the decision of merging with another firm who supplies raw material to
acquiring firm in order to safeguard the sources of supplies of raw material or intermediary
product. It will help acquiring firm to bring economies in purchasing of raw material. It will also
help to cut down the transportation cost. Example- Videocon takes over Thomson picture tube in
China to procure supply of picture tube required for producing television sets.
10. Market expansion strategy: Many firms go for mergers and acquisitions as a part of market
expansion strategy. Mergers and acquisitions will help the company to eliminate competition and
to protect existing market. It will also help the firm to obtain new market for promoting their
existing or obsolete products. For example, Lenovo takes over IBM in India to increase market for
Lenovo products like desktops, laptops in India.12
10
Navpreet, Mergers and Acquisitions in India, Available at: http://www.legalserviceindia.com/articles/amer.html
(Last visited on December 17, 2020).
11
Edupristine Available at: https://www.edupristine.com/blog/mergers-acquisitions (Last visited on December 17,
2020).
12
Ibid
Page 9 of 29
11. Financial synergy: Financial synergy may be the reason for mergers and acquisitions.
Following are the financial synergy available in case of mergers and acquisitions;
 Better credit worthiness- This helps companies to purchase good on credit, obtain bank
loan and raise capital in the market easily.
 Reduces cost of capital- The investors consider big firms as safe and hence they expect
lower rate of return for the capital supplied by them. So the cost of capital reduces after
merger.
 Increase debt capacity- After the merger the earnings and cash flows become more stable
than before. This increase the capacity of the firm to borrow more funds.
 Rising of capital- After the merger due to increase in the size of the company, better credit
worthiness and reputation the company can easily raise the capital at any time.13
12. Own development plans: The purpose of mergers & acquisition is backed by the acquiring
company’s own developmental plans. A company thinks in terms of acquiring the other company
only when it has arrived at its own development plan to expand its operation having examined its
own internal strength where it might not have any problem of taxation, accounting, valuation, etc.
but might feel resource constraints with limitations of funds and lack of skill managerial personnel.
It has to aim at suitable combination where it could have opportunities to supplement its funds by
issuance of securities; secure additional financial facilities eliminate competition and strengthen
its market position.14
13. Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees
of cooperative spirit despite competitiveness in providing rescues to each other from hostile
takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve
performance heights through business combinations. The combining corporate aims at circular
combinations by pursuing this objective
14. General gains:
 To improve its own image and attract superior managerial talents to manage its affairs.
 To offer better satisfaction to consumers or users of the product.15
13
Investopedia, Available at: https://www.investopedia.com/terms/m/mergersandacquisitions.asp (Last visited on
December 17, 2020).
14
Edn., 2017)
15
2020).
Page 10 of 29
15. Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage
by reducing their tax liability. In the United States and many other countries, rules are in place to
limit the ability of profitable companies to "shop" for loss making companies, limiting the tax
motive of an acquiring company.
 Ahmadabad Cotton Mills Merged with Arvind Mills ( Rs =3.34 crores)
 Sidhaper Mills merged with Reliance Industries Ltd.(Rs. 3.34 crores)16
Definitions of Merger:-
Mergers involve the mutual decision of two companies to combine & become one entity. The
combined business can cut cost of operation & increase profit which will boost shareholders value
for both groups of shareholders. In Merger of two corporations, shareholders usually have their
shares in the old organization & are exchanged for an equal numbers of shares in the merged entity.
According to the Oxford Dictionary “merger” means “combining of two companies into one”.
Merger is a fusion between two or more enterprises, whereby the identity of one or more is lost
and the result is a single enterprise. In merger the assets and liabilities of the companies get vested
in another company, the company that is merged losing its identity and its shareholders becoming
shareholders of the other company.17 All assets, liabilities and the stock of one company are
transferred to Transferee Company in consideration of payment in the form of:
 Equity shares in the transferee company,
 Debentures in the transferee company,
 Cash, or
 A mix of the above modes.
In the pure sense, 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." For example, both Daimler-Benz and
Chrysler ceased to exist when the two firms merged, and a new company, Daimler Chrysler, was
created.18
16
Financial Performance Before and After Mergers and Acquisitions of the Selected Indian Companies. Available
at: http://shodhganga.inflibnet.ac.in/bitstream/ (last visited on December 17, 2020)
17
December 17, 2020).
18
Edn., 2017)
Page 11 of 29
Meaning and Concept of Merger:-
A merger can be defined as the fusion or the absorption of one company by another. It may also
be understood as an arrangement; thereby the assets of two or more companies get transferred to
or come under the control of one company.
In common practice, in merger one of the two existing companies merges its identity into another
existing company or one or more existing companies may form a new company and merge their
identities into a new company by transferring their business and undertakings including all assets
and liabilities to the new company. The shareholders of the company whose identity has been
merged are then issued as the shares in the capital of the company merged.
Amalgamation legal process by which two or more companies are joined together to form a new
entity or one or more companies are to be absorbed or blended with another and as a consequence
the amalgamating company loses its existence and its shareholders become the shareholders of the
new company or the amalgamated company. The word amalgamation or merger is not defined
anywhere under the companies act 1956.19
However, [Section 2(1A)] of the Income Tax Act, 1961 defines amalgamation as follows:
“Amalgamation”, in relation to companies, means the merger of one or more companies with
another company or the merger of two or more companies to form one company (the company or
companies which so merge being referred to as the amalgamating company or companies and the
company with which they merge or which is formed as a result of the merger, as the amalgamated
company) in such a manner that-
i. all the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
amalgamation;
ii. all the liabilities of the amalgamating company or companies immediately before the
amalgamation become the liabilities of the amalgamated company by virtue of the
amalgamation;20
19
2020).
20
The Income Tax Act, 1961, Section 2 (1A)
Page 12 of 29
iii. shareholders holding not less than three fourths in value of the shares in the amalgamating
company or companies(other than shares already held therein immediately before the
amalgamation by, or by a nominee for, the amalgamated company or its subsidiary become
shareholders of the amalgamated company by virtue of the amalgamation, otherwise than
as a result of the acquisition of the property of one company by another company pursuant
to the purchase of such property by the other company or as a result of the distribution of
such property to the other company after the winding up of the first mention company.
Otherwise, then as a result of acquisition of a property of one company by another company

pursuant to the purchase of property by another company or as a result of distribution of such
property to the other company after the winding up of the first mentioned company.21
Types of Mergers:-
There are three main types of mergers which are Horizontal merger, Vertical merger &
Conglomerate merger. These types are explained as follows;
1. Horizontal Merger:- This type of merger involves two firms that operate & compete in a
similar kind of a business. Horizontal merger is based on the assumptions that it will provide
economies of scale from the larger combined unit. The economies of scale are obtained by the
elimination of duplication of facilities, broadening the product line, reduction in the advertising
cost. Horizontal mergers also have potentials to create monopoly power on the part of the
combined firm enabling it to engage in anti-competitive practices.22
Examples: -
1. Mumbai - Glaxo India Limited and Smith Kline Beecham Pharmaceuticals (India) Limited
have legally merged to form GlaxoSmithKline Pharmaceuticals Limited in India (GSK). A
merger would let them pool their research & development funds and would give the merged
company a bigger sales and marketing force.
2. Merger of Centurion Bank & Bank of Punjab.
3. Merger between Holicim & Gujarat Ambuja Cement ltd
21
The Income Tax Act, 1961, Section 2 (1A)
22
December 17, 2020).
Page 13 of 29
2. Vertical Merger:- A vertical Merger involves merger between firms that are in different stages
of production or value chain. A company involved in vertical merger usually seeks to merge with
another company or would like to takeover another company mainly to expand its operations by
backward or forward integration. The acquiring company through merger of another units attempt
to reduce inventory of raw materials and finished goods. The basic purpose of vertical merger is
to eliminate cost of searching raw materials. Vertical merger takes place when both firm plan to
integrate the production process and capitalize on the demand for the product. A company decides
to get merged with another company when it is not in a position to get strong position in a market
because of imperfect market of intermediary product, scarcity of resources. Example: - Among the
Indian corporate that have emerged as big international players is the Videocon group. The group
became the third largest colour picture tube manufacturer in the world when it announced the
purchase of the colour picture tube business of France-based Thomson SA, which includes units
in Mexico, Poland and China, for about Rs 1260 crore.23
3. Conglomerate merger:- Conglomerate mergers means mergers between firms engaged in
unrelated types of business activity. The basic purpose of such combination is utilization of
financial resources. Such type of merger enhances the overall stability of the acquirer company
and creates balance in the company’s total portfolio of diverse products and production processes
and thereby reduces the risk of instability in the firm’s cash flows.24
Conglomerate mergers can be distinguished into three types:
I. Product extension mergers These are mergers between firms in related business activities
and may also be called concentric mergers. These mergers broaden the product lines of the
firms.
II. Geographic market extension mergers: These involve a merger between two firms
operating in two different geographic areas.
III. Pure conglomerates mergers: These involve mergers between two firms with unrelated
business activities. They do not come under product extension or market extension.25
23
2020).
24
Shopify Available at: https://www.shopify.in/encyclopedia/mergers-and-acquisitions (Last visited on December
17, 2020).
25
Edn., 2017)
Page 14 of 29
4. Congeneric Mergers – These are mergers between entities engaged in the same general
industry and somewhat interrelated, but having no common customer-supplier relationship. A
company uses this type of merger in order to use the resulting ability to use the same sales and
distribution channels to reach the customers of both businesses.26
5. Cash Merger- In a 'cash merger', otherwise called a 'cash out merger', the investors of one
element gets money of offers in the blended substance. This is successfully an exit for the got the
money for out investors.
6. Triangular Merger-A triangular merger is regularly turned to, for administrative and charge
reasons. As the name proposes, it is a tripartite plan in which the objective converges with a backup
of the acquirer. In view of which substance is the survivor after such merger, a triangular merger
might be forward (when the target converges into the backup and the auxiliary endures), or inverted
merger.27
Definition of Acquisition:-
An acquisition usually refers to a purchase of a smaller firm by a larger one. Acquisition, also
known as a takeover or a buyout, is the buying of one company by another. Acquisitions or
takeovers occur between the bidding company and the target company. There may be either hostile
or friendly takeovers. Acquisition in general sense is acquiring the ownership in the property. In
the context of business combinations, an acquisition is the purchase by one company of a
controlling interest in the share capital, or the all or substantially all of the assets and/or liabilities,
of another company. A takeover may be friendly or hostile, depending on the offeror company’s
approach, and may be affected through agreements between the offeror and the majority
shareholders, purchase of shares from the open market, or by making an offer for acquisition of
the offeree shares to the entire body of shareholders.28
26
2020).
27
28
Edn., 2017)
Page 15 of 29
An acquisition is when one company purchases most or all of another company's shares to gain
control of that company. Purchasing more than 50% of a target firm's stock and other assets allows
the acquirer to make decisions about the newly acquired assets without the approval of the
company’s other shareholders. Acquisitions, which are very common in business, may occur with
the target company's approval, or in spite of its disapproval. With approval, there is often a no-
shop clause during the process. We mostly hear about acquisitions of large well-known companies
because these huge and significant deals tend to dominate the news. In reality, mergers and
acquisitions (M&A) occur more regularly between small- to medium-size firms than between large
companies.29
Meaning and Concept of Acquisition:-
Acquisition in general sense is acquiring the ownership in the property. In the context of business
combinations, an acquisition is the purchase by one company of a controlling interest in the share
capital of another existing company.
On the other hand, Acquisition means the purchase of a smaller company by much larger one. A
larger company can initiate an Acquisition of smaller firm which essentially amounts to buy the
company in the face of resistance from smaller company’s management. Unlike Mergers in an
Acquisition the acquiring firm usually offers a cash price per share to target firm’s shareholders.
Acquisition means an attempt by one firm to gain majority interest in the another firm called target
firm &dispose-off its assets or to take the target firm private by small group of investors.
A company can buy another company with cash, stock or a combination of the two. Another
possibility, which is common in smaller deals, is for one company to acquire all the assets of
another company. 30
An acquisition may be affected by;
a) agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;
b) purchase of shares in open market;
29
Edn., 2017)
30
Ibid at P-236
Page 16 of 29
c) to make takeover offer to the general body of shareholders;
d) purchase of new shares by private treaty;
e) Acquisition of share capital through the following forms of considerations viz. means of
cash, issuance of loan capital, or insurance of share capital.31
Kinds of Acquisition:-
There are broadly two kinds of strategies that can be employed in corporate acquisitions. These
include:
I. Friendly Takeover:-The acquiring firm makes a financial proposal to the target firm’s
management and board. This proposal might involve the merger of the two firms, the
consolidation of two firms, or the creation of parent/subsidiary relationship.
II. Hostile Takeover:- A hostile takeover may not follow a preliminary attempt at a friendly
takeover. For example, it is not uncommon for an acquiring firm to embrace the target
firm’s management in what is colloquially called a bear hug.32
Distinction between Mergers and Acquisitions:-
Although they are often uttered in the same breath and used as though they were synonymous, the
terms merger and acquisition mean slightly different things. 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.
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.
31
32
Edn., 2017)
Page 17 of 29
For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a
new company, DaimlerChrysler, was created.In practice, however, actual mergers of equals don't
happen very often. Usually, one company will buy another and, as part of the deal's terms, simply
allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an
acquisition. Being bought out often carries negative connotations, therefore, by describing the deal
as a merger, deal makers and top managers try to make the takeover more palatable.
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.
Whether a purchase is considered a merger or an acquisition really depends on whether the

purchase is friendly or hostile and how it is announced. In other words, the real difference lies in
how the purchase is communicated to and received by the target company's board of directors,
employees and shareholders.33
Motives behind Merger and Acquisitions:-
Accelerating a company’s growth particularly when its internal growth is constrained due to
paucity of resources, internal growth requires that a company should develop its operating
facilities- manufacturing, research, marketing, etc. But lack or inadequacy of resources and time
needed for internal development may constrain a company's pace of growth. Hence, a company
can acquire production facilities as well as other resources from outside through mergers and
acquisitions to acquire requisite infrastructure and skills and grow quickly.34
This may happen because of –
1. Economies of Scale: - Arise when increase in the volume of production leads to a reduction in
cost of production per unit. This is because, with merger, fixed costs are distributed over a large
volume of production causing the unit cost of production to decline. Economies of scale may also
arise from other indivisibilities such as production facilities, management functions and
management resources and systems.
33
34
Ibid
Page 18 of 29
2. Operating Economies: - Arise because, a combination of two or more firms may result in cost
reduction due to operating economies. In other words, a combined firm may avoid or reduce
overlapping functions and consolidate its management functions such as manufacturing,
marketing, R&D and thus reduce operating costs. For example, a combined firm may eliminate
duplicate channels of distribution etc.
3. Synergy: - Implies a situation where the combined firm is more valuable than the sum of the
individual combining firms. It refers to benefits other than those related to economies of scale.
Operating economies are one form of synergy benefits. But apart from operating economies,
synergy may also arise from enhanced managerial capabilities, creativity, innovativeness, R&D
and market coverage capacity due to the complementary resources and skills and a widened
horizon of opportunities.35
4. Tax Savings:- A profitable company can buy a loss making unit to use the targets tax write
offs.
5. Greater Value Generation: Companies go for Merger and Acquisitions from the idea that, the
joint company will be able to generate more value than the separate firms. When a company buys
out another, it expects that the newly generated shareholder value will be higher than the value of
the sum of the share s of the two separate companies.36
6. Gain in Market Share: - Merger and Acquisition can prove to be really beneficial to the
companies when they are weathering through the tough times. If the company which is suffering
from various problems in the market and is not able to overcome the difficulties, it can go for an
acquisition deal. If a company, which has strong market presence, buys out the weak firm, then a
more competitive and cost efficient company can be generated.37
35
Edn., 2017)
36
37
2020).
Page 19 of 29
Advantages & Disadvantages of Mergers & Acquisitions:-
Advantages-
Mergers and acquisitions is the permanent combination of the business which vest management in
complete control of the business of merged firm. Shareholders in the selling company gain from
the mergers and acquisitions as the premium offered to induce acceptance of the merger or
acquisitions. It offers much more price than the book value of shares. Shareholders in the buying
company gain premium in the long run with the growth of the company.38
Mergers and acquisitions are caused with the support of shareholders, managers and promoters of
the combing companies. The advantages, which motivate the shareholders and managers to give
their support to these combinations and the resulting consequences they have to bear, are briefly
noted below.
 From shareholders point of view: - Shareholders are the owners of the company so they
must get be benefited from the mergers and acquisitions. Mergers and acquisitions can
affect fortune of shareholders. Shareholders expect that investment made by them in the
combining companies should enhance when firms are merging. The sale of shares from
one company’s shareholders to another and holding investment in shares should give rise
to greater values. Following are the advantages that would be generally available in each
merger and acquisition from the point of view of shareholders;
I. Face value of the share is increased.
II. Shareholders will get more returns on the investments made by them in the combining
companies.
III. Sale of shares from one company’s shareholder to another is possible.
IV. Shareholders get better investment opportunities in mergers and acquisitions.39
38
Edn., 2017)
39
Page 20 of 29
 From managers point of view: - Managers are concerned with improving operations of
the company, managing the affairs of the company effectively for all round gains and
growth of the company which will provide them better deals in raising their status, perks
and fringe benefits. Mergers where all these things are the guaranteed outcome get support
from the managers.40
 From Promoters point of view: -
a) Mergers offer company’s promoters advantages of increase in the size of their company,
financial structure and financial strength.
b) Mergers can convert closely held and private limited company into public limited
company without contributing much wealth and losing control of promoters over the
company.41
 From Consumers point of view: - Consumers are the king of the market so they must get
some benefits from mergers and acquisitions. Benefits in favour of the consumer will
depend upon the fact whether or not mergers increase or decrease competitive economic
and productive activity which directly affects the degree of welfare of the consumers
through changes in the price level, quality of the products and after sales service etc.
Following are the benefits that consumers may derive from mergers and acquisitions
transactions;-
a) Low price & better quality goods: - The economic gains realized from mergers and
acquisitions are passed on to consumers in the form of low priced and better quality
goods.
b) Improve standard of living of the consumers: - Low priced and better quality products
directly improves standard of living of the consumers.42
40
Edn., 2017)
41
2020).
42
December 17, 2020).
Page 21 of 29
Disadvantages- Merger or acquisition of two companies in the same field or in diverse field may
involve reduction in the number of competing firms in an industry and tend to dilute competition
in the market. They generally contribute directly to the concentration of economic power and are
likely to lead the merger entities to a dominant position of market power. It may result in lesser
substitutes in the market, which would affect consumer’s welfare. Yet another disadvantage may
surface, if a large undertaking after merger because of resulting dominance becomes complacent
and suffers from deterioration over the years in its performance.43
Following are some disadvantages of mergers and acquisitions:-
 Creates monopoly- when two firms merged together they get dominating position in the
market which may lead to create monopoly in the market.
 Leads to unemployment-Raiders shouldn’t have the right to buy up firms they have no idea
how to run – the employees who have spent their lives building up the firm should be
making the decisions.
 Raiders become filthy rich without producing anything, at the expense of hardworking
people who do produce something.
 M&A damages the morale and productivity of firms.
 Corporate debt levels have risen to dangerous levels.
 Managers pressured to forego long-term investment in favour of short-term profit.
 Shareholders may be payed lesser dividend if the firm is not making profits. There may be
a possibility that shareholders would be paid less returns on investment if the company is
not earning enough profit.
 Corporate raiders use their control to strip assets from the target, make a quick profit,
destroying the company in the process, throwing people out of work.44
43
Edn., 2017)
44
December 17, 2020).
Page 22 of 29
Success & Failure of Mergers & Acquisitions:-
Factors responsible for successful mergers and acquisitions

The success of merger depends upon many critical factors but the main factor is that Transferor
Company should buy Transferee Company at right time, at right place and at right cost. Just
because of company is for sale and another company can afford buying that company is not good
reason to do a deal. The success of mergers and acquisitions depend on how realistic deal makers
are and how well they can integrate two companies while maintaining day-to-day operations.
There are several key ingredients that need to come together for merger and acquisitions to be
successful.45
1. Strategy- Strategy is the basis for any merger and acquisition. Company should be able to
express in one sentence the motive behind merger and acquisition. If the transferor company is not
able to express the motive for doing a deal for merger then the deal should not be done. There are
many strategic reasons to buy a company some of them are listed as follows;
 Acquire Innovative technical skills.

 Obtain new markets and customer.
 Enhance product line.46
2. Motive- Buying company i.e. transferor company does not know reasons why another company
is being sold. It should ask reasons for selling the company. Transferor Company should also try
to know what selling company knows about the business that they are not telling potential buyers.
After knowing all reasons for selling a company buying company would be in a position to decide
whether to go for a deal or not. If they are going for deal then buying company should decide
appropriate price for the deal. Buying company should also examine its own motive for wanting
to acquire the company, whether it is good asset for the company that would enhance the market
of buying company.47
45
Academia Education Available at: https://www.academia.edu/29727435/merger_and_acquisition_of_flipkart
46
December 17, 2020).
47
2020).
Page 23 of 29
3. Price- A low price does not always equate to a good deal, but higher the price; it is fewer
cushions for unexpected problems. Buying company is often forced to pay more price than they
want to pay for the deal. In a competitive situation the buying company needs to decide how much
it is willing to pay and not exceed that level, even if it means losing the company. However, in any
merger and acquisition there is a pricing range, based on different assumptions of the future
performance of the merger and acquisition. The buying company has to decide the price to offer
for the deal, or how risk will be divided between shareholders of merging company.48
4. Post-Merger Management- For a merger to succeed much work a remains after the deal has
been signed. The strategy and business model of the old firms may no longer be appropriate when
a new firm is formed. Each firm is unique and presents it’s own set of problems and solutions. It
takes a systematic effort to combine two or more companies after they have come under a single
ownership.
5. Due Diligence- Due diligence means, “A large part of what makes a deal successful after
completing it, is what is being done before completing it”. Before the closing of the deal, the buyer
should engage in a thorough due diligence review of the sellers business. The purpose of the review
is to detect any financial and the business risk that the buyer might inherit from the seller. The due
diligence team can identify ways in which assets, process and other resources can be combined in
order to realize cost saving and other expected synergies. The planning team can also try to
understand the necessary sequencing of events and resulting pace at which the expected synergies
may be realized.49
Factors responsible for failure of mergers and acquisitions
As there are many factors responsible for success of mergers similarly there are many factors
responsible for failure of the merger. The main factor is buying wrong company at wrong time, at
wrong place and by paying wrong price. If the process through which merger is executed is faulty
then it will affect merger adversely. Historical trends show that roughly two thirds of big mergers
will disappoint on their own terms, which means they will lose value on the stock market.50
48
2020).
49
50
17, 2020).
Page 24 of 29
Some of reasons for failure of mergers and acquisitions are listed below;
1. Payment of high price- The merger fails when the maximum price is paid to buy another
company. In such situation shareholders of Transferee Company will receive more cash but the
shareholders of Transferor Company will pay more cash. As a result of this deal for merger will
fail.
2. Culture clash- Lack of proper communication, differing expectations and conflicting

management styles due to differences in corporate culture contribute to failure in implementing
plan and therefore, failure of mergers and acquisitions.
3. Overstated synergies: - An acquisition can create opportunities of synergy by increasing

revenues, reducing costs, reducing net working capital and improving the investment intensity.
Over estimation of such synergies may lead to a failure of this merger. Inability to prepare plans
leads to failure of mergers and acquisitions.51
4. Failure to integrate operations- Once firms are merged management must be prepared to adapt
plans in favour of changed circumstances. Inability to prepare plans leads to failure of mergers and
acquisitions.
5. Inadequate due diligence- The process of the due diligence helps in detecting any financial
and business risks that the buyer might inherit from the seller. Inadequate due diligence results in
the failure of the mergers and acquisitions.52
Some Examples of Mergers And Acquisitions:-
1. Merge of GlaxoSmithKline Pharmaceuticals Limited, India
Glaxo India Limited and Smith Kline Beecham Pharmaceuticals (India) Limited have legally
merged to form GlaxoSmithKline Pharmaceuticals Limited in India (GSK). It may be recalled here
that the global merger of the two companies came into effect in December 2000.
51
at: http://shodhganga.inflibnet.ac.in/bitstream/ (last visited on December 17, 2020).
52
Page 25 of 29
Commenting on the prospects of GSK in India, Vice Chairman and Managing Director,
GlaxoSmithKline Pharmaceuticals Limited, India, Mr. V Thyagarajan said, “The two companies
that have merged to become GlaxoSmithKline in India have a great heritage – a fact that gets
reflected in their products with strong brand equity.” He added, “The two companies have a long
history of commitment to India and enjoy a very good reputation with doctors, patients, regulatory
authorities and trade bodies. At GSK it would be our endeavor to leverage these strengths to
further consolidate our market leadership.”53
 GlaxoSmithKline, India
The merger in India brings together two strong companies to create a formidable presence in the
domestic market with a market share of about 7 per cent. With this merger, GlaxoSmithKline has
increased its reach significantly in India. With a field force of over 2,000 employees and more than
5,000 stockiest, the company’s products are available across the country. The enhanced basket of
products of GlaxoSmithKline, India will help serve patients better by strengthening the hands of
doctors by offering superior treatment and healthcare solutions.54
 GlaxoSmithKline, Worldwide
GlaxoSmithKline is the world’s leading research-based pharmaceutical and healthcare company,
with an R&D budget of over ₤2.3 billion (Rs.16, 130 crores). GlaxoSmithKline has a powerful
research and development capability, encompassing the application of genetics, genomics,
combinatorial chemistry and other leading edge technologies. A truly global organization with a
wide geographic spread, GlaxoSmithKline has its corporate headquarters in the West London, UK.
The company has over 100,000 employees and supplies its products to 140 markets around the
world. It has one of the largest sales and marketing operations in the global pharmaceutical
industry.55
53
December 17, 2020).
54
55
2020).
Page 26 of 29
Merger of Lenovo and IBM December 2004
International Business Machines Corp. (IBM) has agreed to sell its personal computer business to
China's largest personal computer maker, Lenovo Group Ltd., for US$1.25 billion. The sale brings
to a close a major chapter in IBM's pioneering PC business that it started in 1981.
The agreement calls for Lenovo to pay IBM $650 million in cash, $600 million in Lenovo Group
common stock and for Lenovo to assume $500 million in net balance sheet liabilities from IBM.
Lenovo took over IBM's desktop PC business, including research and development and
manufacturing.
IBM will own an 18% stake in the new established PC Company, and will let it continue to use
the IBM brand as well as other trademarks on PC's and notebook computers. The new company
will become the number three maker of PCs behind Dell Inc. and Hewlett-Packard Co. The new
company will be based in New York, with principal operations in Beijing and. It is expected that
2,500 IBM employees will join the new company.56
Lenovo Group Ltd. has purchased $1.75 billion PCs from IBM Inc, creating the third-largest
personal computer vendor in the world and giving IBM greater entry into the rapidly growing
Chinese market. Lenovo will gain control of IBM's Think Centre desktop and popular ThinkPad
notebook brands, as well as the thousands of customers who buy those products.
Customer reaction to the deal when it was first announced in December was mixed, but IBM
executives were aggressive in getting out the message that the quality of the products, services and
support would not change.
Lenovo will operate two divisions—Lenovo International, which is essentially the old IBM PC
business, and Lenovo China, the company's Chinese business.
The main purpose of IBM to merge with Lenovo is that to give competition to Dell Inc. (world’s
largest PC manufacturer) in China. Reason for Lenovo to merge with IBM is to enter into US
market. After the merger Dell Inc. announced that it would discontinue selling their lower end PCs
in China because it was nit able to compete on price of local manufacturer.
56
17, 2020).
Page 27 of 29
Conclusion:-
One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership
boundaries through mergers and acquisitions. At least in theory, mergers provide economies of
scale by expanding operations and cutting costs. Investors can take comfort in the idea that a
merger will deliver enhanced market power.
Now a day, many companies are taking decision to go for merger and acquisitions to expand their
business. But, the procedure for merger is time consuming it almost takes 6 to 7 months. Therefore,
most of the mergers and acquisitions are not completed.
Mergers and acquisition transactions are often affected by government rules and regulations, most
of the countries do not allowed foreign companies to enter into local market alone. Such foreign
companies can enter only when they make merger with any local company.
The current trend shows that there is decline in the number of mergers and acquisitions. It is
because of mergers and acquisitions transactions the needs of expertise persons have increased.
Expertise persons include valuation expert, lawyers, accountants, etc. Merger and acquisition will
give positive result only when it is executed properly.\
Mergers and acquisition result in customers receiving more services which generally include larger
loan limits, more branches and more Automated Teller Machines (ATMs).These results are further
reiterated by the case study of merger of ICICI Bank with the Bank of Rajasthan. The
amalgamation of ICICI bank with Bank of Rajasthan came in to effect on August 13, 2010 when
RBI approved the deal. Post-merger results are satisfactory. Merger has increased the liquidity and
profitability position of ICICI bank. HR ISSUES have always being a major concern for the
merging firms because the major impact of this merger is on the employment position of
employees of BOR. The merger has increased no. of branches and no. of ATM’s.
Hence, the merger is beneficial for both the banks. Hence we conclude that mergers and
acquisitions are beneficial for the Indian banks and shall enable the Indian banking industry to
combat the global competition
Page 28 of 29
Bibliography:-
Text-Books:-
1. Merger Acquisitions & Corporate Restructuring: - By Rabi Naryan Kar & Minakshi
2. Corporate Mergers Amalgamations and Takeovers: - By J.C Verma
3. Mergers and Acquisitions:- By Kavita Shetty , Rajinder S. Aurora & Sharad R. Kale
Websites-Referred:-
1. https://en.wikipedia.org/wiki/
2. http://www.legalserviceindia.com/
3. https://corporatefinanceinstitute.com/
4. https://www.investopedia.com/
********************************
Page 29 of 29

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CENTRAL UNIVERSITY OF SOUTH BIHAR

Submitted To Course Instructor Submitted By Student

Mr. Mani Pratap Amitesh-Tejaswi

 History of Merger & Acquisition

 Need for Merger & Acquisition

 Definitions of Merger & Acquisition

 Meaning & Concept of Merger & Acquisition

 Meaning & Concept of Acquisition

 Distinction between Merger & Acquisition

 Motives behind Merger & Acquisition

 Advantages & Disadvantages of Merger & Acquisition

 Success & Failure of Merger & Acquisition

 Some examples of Merger & Acquisition

 Merger of Lenovo & IBM December 2004

I am deeply indebted to my colleagues for their meticulous planning, layout, presentation

(Signature of the Student)

Scope and Limitations

History of Merger & Acquisition

Need for Mergers & Acquisitions:-

 Value (A + B) > Value (A) + Value (B)

Otherwise, then as a result of acquisition of a property of one company by another company

Meaning and Concept of Acquisition:-

An acquisition may be affected by;

Distinction between Mergers and Acquisitions:-

Whether a purchase is considered a merger or an acquisition really depends on whether the

Motives behind Merger and Acquisitions:-

This may happen because of –

I. Face value of the share is increased.

III. Sale of shares from one company’s shareholder to another is possible.

IV. Shareholders get better investment opportunities in mergers and acquisitions.39

 From Promoters point of view: -

Factors responsible for successful mergers and acquisitions

 Acquire Innovative technical skills.

2. Culture clash- Lack of proper communication, differing expectations and conflicting

3. Overstated synergies: - An acquisition can create opportunities of synergy by increasing

Some Examples of Mergers And Acquisitions:-

1. Merge of GlaxoSmithKline Pharmaceuticals Limited, India

2. Corporate Mergers Amalgamations and Takeovers: - By J.C Verma

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