Merger & Amalgamation

What is merger ?
A merger can be defined as the fusion or absorption of
one company by another.
What is Amalgamation ?
As per general
As per income tax act 1961
As per accounting standard
- Amalgamation in the nature of merger.
- Amalgamation in the nature of purchase.
Reason & purpose behind Amalgamation &
Merger-
To achieve economies of scale.
To compete globally.
To acquire and maximize the available managerial skill
to increase the profitability.
Achieving growth through diversification.
To reduce the gestation period of new business.
Classification of merger-
Horizontal merger-
The merger of two companies which are producing
essentially the same product or services which
compete directly with each other.

-Boeing-McDonnell Douglas
-lipton india – brookebond
- Bank of mathura – icici.
Vertical merger-
Vertical Mergers When two firms working in different
stages of production or distribution of the same
product join together, it is called Vertical Merger

Eg- Time Warner-TBS;

Disney-ABC Capitol Cities;
Conglomerate merger-
A Conglomerate merger involves two firms in totally
unrelated activities. A conglomerate is a firm that has
external growth through a number of mergers of
companies whose business are not related either
horizontally or vertically.

Eg- PepsiCo-Pizza Hut;

Proctor & Gamble-Clorox
Another types of merger are-
Cash merger
Downstream merger
Upstream merger
Short form merger
Reverse merger
Triangular merger
Triangular merger
Subsidiary company

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A merger take place in following four ways-
By purchase By purchase of
of asset common share

Exchange of
By exchange of
shares of
share of asset
shares
By purchasing of asset-
The asset of company Y may be sold to company X.
Once this is done, company Y is then legally
terminated and company X survives..
By purchasing of common shares-
The common share of the company Y may be
purchased by company X. When company X holds all
the shares of company Y, it is dissolved. By purchase of
common shares.
By exchange of shares of asset-
Company X may give its shares to the shareholders of
company Y for its net assets. Then company Y is
terminated by its shareholders who now holds shares
of company X.

Shares to share holder for net asset

X Y
By exchange of shares of shares-
Company X gives its shares to the shareholders of
company Y and then company Y is terminated.
Exchange of shares for shares

Shares to share holder

X Y
Asian paints Berger international
Year-2002 Asian Acquired 50.1% controlling stake in
Berger International.
 Deal Rs.57.6 Crores
Berger International has no operation in India
 but formed Berger Paints India Ltd. in
Calcutta(subsidiary)
2.Ranbaxy-Tokyo based Nippon Chemiphar Co. Ltd :
2002 Pharmacy market Ranbaxy (RLL) Helps to understand Japanese regulatory
framework and market environment. Product advantage 2.Ranbaxy-Tokyo based
Nippon Chemiphar Co. Ltd EXAMPLES

3.AOL sells call centre to Essar :

April 1st 2008 Aegis BPO of Essar takes over to acquire AOL call centre in white field It
is estimated at $100 million Payable in cash. Purpose is to enhance its voice and non
voice offerings in the technological support space. 3.AOL sells call centre to Essar
EXAMPLES

4.HP and Compaq Product line synergy :

2002 Deal for $25 billion Exchange ratio 0.6325 in shares of HP for 1 share in Compaq
Compaq is good in consumer desk top, better distribution net work HP is global leader
in printers and scanners. Purpose- large customer base and elimination of computer
overlapping product lines 4.HP and Compaq Product line synergy EXAMPLE