1. MERGER AND ACQUISITION- THE BASIC CONCEPT
 INTRODUCTION
The terms mergers and acquisitions may often be confused and look similar.
However, the two have different meanings. Mergers may be of various types and
so can acquisitions be. There are few terms like "spin out", "demerger" and "spin
off", which are used to denote the process by which a company separates into two
different companies. The nascent company is usually a listed company on the stock
exchange. The term "Mergers and Acquisitions" is an expression of a strategy
pertaining to the corporate sector.
 MERGER
When one company purchases another company of an approximately similar size.
The two companies come together to become one. Two companies usually agree to
merge when they feel that they can do something together that they can't do on
their own.
The combining of two or more companies, generally by offering the stockholders
of one company securities in the acquiring company in exchange for the surrender
of their stock.Merger is primarily a strategy of inorganic growth.
For example, AOL and Time Warner merged a few years back in hopes that they
could both gain something. AOL wanted access to Time Warner's cable network.
Time Warner wanted access to AOL's users (to promote movies and other Time
Warner products) as well as AOL's extensive internet content.

2.  TYPES OF MERGER
Merger may be horizontal or vertical or conglomerate.
Under horizontal merger two rival companies tend to share the same product line
and thereby take the mutual benefit of stability of their products. Under vertical
merger two companies or firms, dealing with two separate lines of business get
together for mutual benefit. For example, in the electronic sector if Compaq and
Intel merge then it will be vertical one. Similarly, if automobile makers like Ford
and Maruti merge then it will come under horizontal merger. Under conglomerate
merger two companies with diverse business lines in terms of products and
marketing and management tend to get united for a new product and business
methodology.Conglomerate transactions take many forms, ranging from short-term
joint ventures to complete mergers. Whether a conglomerate merger is pure,
geographical, or a product-line extension, it involves firms that operate in separate
markets. Therefore, a conglomerate transaction ordinarily has no direct effect on
competition.
Other types of mergers include:
 Reverse mergers
 Dilutive mergers
 Accretive mergers.
Under merger two or more companies integrate into a single outfit for common
business objectives. It is gainful amalgamation. Under this arrangement both assets
and liabilities get transferred from the transferor to transferee.

3.  CONSOLIDATION
It involves creation of an altogether new company owing assets, liabilities, loans
and business ( on going concern basis) of two or more companies both all of
which cease to exist.
 AMALGAMATION
This term is used only in India. It is an umbrella term which includes both merger
and consolidation. Thus amalgamation could either be in the form of merger or
consolidation. In India legal requirement for either merger or consolidation are the
same. They are stipulated in Section 390 to 394A and 396 and 396A of the
Companies Act, 1956.
 SYNERGY
Synergy is the magic force that allows for enhanced cost efficiencies of the new
business. Synergy takes the form of revenue enhancement and cost savings. By
applying the rules of synergy effectively, a merger can be made a success.
 ACQUISITION
Acquisition is an attempt or a process by which a company or an individual or a
group of individuals acquires control over another company called “target
company”.
A company is said to have "Acquired" a company, when one company buys
another company. Acquisitions can be either:
 Hostile
 Friendly

4. In case of hostile acquisitions, the company, which is to be bought, has no
information about the acquisition. The company, which would be sold, is taken by
surprise.
In case of friendly acquisition, the two companies cooperate with each other and
settle matters related to acquisitions.
There are times when a much smaller company manages to take control of the
management of a bigger company but at the same time retains its name for the
combination of both the companies. This process is known as "reverse takeover".
There may be two types of acquisitions depending on the option adopted by the
buying company. In one case, the buying company may buy all the shares of the
smaller company. The other option is buying the assets of the smaller companies.
 DIFFERENCE BETWEEN MERGER AND AMALGAMATION
Merger is restricted to a case where the assets and liabilities of the companies get
vested in another company, the company which is merged losing its identity and its
shareholders becoming shareholders of the other company. On the other hand,
amalgamation is an arrangement, whereby the assets and liabilities of two or more
companies become vested in another company (which may or may not be one of
the original companies) and which would have as its shareholders substantially, all
the shareholders of the amalgamating companies.
 DIFFERENCE BETWEEN MERGER AND CONSOLIDATION
A Merger is when two or more corporations come together but only one of the
corporation stays exists afterwards. For example if company A and Company B
merge to and only company A or B exists afterwards. In consolidation, when two

5. or more corporations come together to form a completely new corporation. For
example company A and Company B consolidate to form company C.
 REASONS FOR M&A
Why do promoters give up the companies that they have set up and nurtured
for years?
There are many reasons behind mergers and acquisition. For instance, a particular
company is very good at administration while some other company is good at
marketing strategies or in operations. If the expertise of both is amalgamated, it
produces synergy. A new company is formed in the process, which has a potential
much higher and superior to what the individual companies previously had.
 Existing non profitable business
Corus vs. Tata steel case-Corus was sold out to Tata steel since the former was
making losses.
National Organic Chemicals Industries Limited (NOCIL) sold to Reliance
Industries Limited (RIL) after it started incurring heavy losses around the turn of
the century.
 Existing non-synergistic or non-core business
Larsen & Toubro (L&T) demerged its cement business from UltraTech Cement
Limited. Therefore Grasim Limited, a Flagship company of A.V. Birla Group,
acquired control over Ultra Tech. It is believed that one of the reason why L&T,
sold its cement business to the Birlas is to opt out of the non –core business.
Focusing on its core engineering business would have created a far better
shareholder value and hence it opted out of the cement business.

6.  Generate cash flow for other business(es)
India cement sold 94.69% of its stake in Shri Vishnu Cement at an enterprise value
of Rs.385 crore. The objective behind this was not only to get rid of the ailing Shri
Vishnu Cement but to generate cash for retiring high-cost debts of India Cement
and also funding its expansion plans.
 Inability – real or perceived – to withstand competition
Lakme Ltd sold its brand and cosmetics business to Hindustan Lever Ltd
(HLL).The main reason behind that was that Lakme management was finding it
difficult to pump in huge money to support its brand in the face of advertisement
blitzkrieg by MNC’s especially HLL.
 Inability to achieve further growth
Bazee.com was sold to e-Bay.com. The intention of the promoters of Bazee.com
was to combine their local expertise with global perspective and the deep pockets
of e-Bay to take Bazee’s business to the next level.
Similarly, Daksh e-Service was merged with IBM so that Daksh e-Service will get
continuous jobs from IBM enabling it to grow faster and become the front runner
in the outsourcing industry in India.
 Trade –off for survival
The first most reason why Larsen & Toubro’s (L&T) professional management
agreed to give away the cement business to Birla was their own survival, apart
from the objective of divesting non-core business. In order to save their control
over L&T which by then was a 10,000 crore empires even sans cement, the L&T
management had no choice but to agree to give away the cement business.

7. Several other reasons for mergers are as follows:
 Enhancing company productivity. There is also a general tendency that the
merged companies would monopolize the market, thereby ousting others.
 Political factors.
 Cutting down expenses and increasing revenues.
 When a company is not self-sufficient to operate on its own. Hindrances
may be in the form of insufficient investment capacity, excessive
competition due to which the company is not able to keep pace with other
companies. Under such circumstances, the subsidiaries may merge with the
parent company for better output.