This article has been written by Ms Kamakshi, a 4th year law student from REVA university

A “merger” is not defined in the Companies Act 2013 or the Income Tax Act 1961, but conceptually a “merger” is the combination of two or more companies into one. Build up assets and liabilities and consolidate units into one company.

Mergers usually take place between companies of equal status and scope of business.

A merger is also called a “merger”. The Income Tax Act 1961 (ITA) defines a “merger” as the merging of one or more companies with another company, or the merging of two or more companies to form one company. I’m here. It also mentions other conditions that a “merger” must meet in order to benefit from preferential tax treatment. In India, the judicial process is complex and requires NCLT approval for a merger, and state NCLT approval is also essential if the two companies to be merged are registered in different states.

The new company may retain the name of either Company A or B if it believes it can benefit from the goodwill and reputation of the merging Company A or B.

In a merger, NCLT’s oversight is critical to protect the interests of creditors and shareholders as the company undergoes a complete restructuring of its capital structure and new management team. It usually takes 8-12 months for a successful merger.

Merger consideration may be paid in cash or stock to the shareholders of the merged company. If you don’t want to be part of the new merged company, you prefer cash, but if you choose to continue, you will be allocated stock in the merged company.

Merger type 

1. Amalgamation of congeners/product extensions 

 Such mergers take place between companies operating in the same market. The merger will add new products to the company’s existing product lines. The merger will give the company access to a larger customer base, increasing market share.  

2. Conglomerate merger 

 A conglomerate merger is a collection of companies engaged in independent activities. A merger will  only happen if it increases the wealth of the shareholders. 

3. Market expansion merger 

 Companies operating in different markets but selling the same product merge to gain access to a larger market and  customer base. 

 Four. horizontal fusion 

 Firms operating in markets with few such firms are merging to capture a larger market. A horizontal merger is a type of merger between companies that sell similar goods or services. It leads to elimination of competition. Thus economies of scale can be achieved. 

5. Vertical fusion 

 Vertical mergers occur when companies operating in the same industry but at different levels of the supply chain merge. Such a merger will improve synergies, supply chain management and efficiency.

The terms merger and acquisition are often referred to and used interchangeably, but have different meanings. The difference between the two is written as:

1. When a company acquires another company and clearly establishes itself as the new owner, the acquisition is known as a takeover. Legally, the target company ceases to exist, the buyer “swallows” the business, and the buyer’s shares continue to trade. On the other hand, a merger in the pure sense occurs when two companies, often of approximately the same size, agree to continue as a single new company rather than being owned and operated separately. To do. This type of action is more accurately known as a “merger of equals”. Shares in both companies will be waived and replaced by shares in the new company. For example, Daimler-Benz and Chrysler ceased to exist when the two companies merged to form a new company, DaimlerChrysler.

ii.A purchase agreement is also called a merger if both CEOs agree that the merger is in the best interests of her two companies. But if the deal is unfriendly, i.e. the target company does not want to be acquired, it is always considered an acquisition. iii. Whether a transaction will result in a merger or acquisition depends largely on whether it is friendly or unfriendly and how it is announced. How it is communicated and received by the company’s board of directors, shareholders and employees.

1. In a merger, the shares of both companies will be forfeited and new shares will be reissued. However, in the case of acquisitions, the acquiring company “swallows” the target company’s business that no longer exists, so such a new issuance is not required.
2. A merger involves the merger of a large company and a small company, while a merger is mostly the same company.
3. Mergers may give way to acquisitions. This happens when two companies first decide to merge, and if the deal fails during the negotiation process, the stronger company will eventually succeed the weaker company.

Laws relating to mergers 

 The legal process of mergers is dealt under the following provisions of law in India: 

1. a) Indian Companies Act, 1956- the provisions for mergers are dealt under Sections 391 to 394 of the Act. The four provisions are as follows: 

• Section 391 of the Act provides the power to the companies to compromise or make arrangements with creditors and members. Where a compromise or arrangement is proposed between a company and its creditors or any class of them; or between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company, which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs. 
• Section 392 of the Act provides for the Power of Tribunal to enforce compromise and arrangement. Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it shall have power to supervise the carrying out of the compromise or an arrangement; and 

 may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement..  Section 393 of the Act establishes a requirement to share information of settlements or arrangements with creditors and members by convening a meeting of creditors or a class of creditors or a meeting of a class of members or members pursuant to section 391 is stipulated. There are cases. 

  Section 394 of the Act provides rules to facilitate corporate restructuring and mergers. 

1. b) The Income Tax Act 1961 [Section 2(1A)] defines a merger as the merging of one or more companies with another company or the merging of two or more companies into a new company. doing. The amalgamated company becomes the  assets and liabilities of the amalgamated company, and the shareholders own more than nine-tenths of the value of the shares of the amalgamated company, or the company becomes a shareholder of the amalgamated company.  
2. c) The Competition Act, 2002 regulates  various forms of amalgamation by the Indian Competition Commission. Under this law, no person or entity, whether in the form of an acquisition, merger, or amalgamation, may engage in concentrations that may significantly impair or cause competition in the relevant market, and such Concentration is invalid. Companies planning to merge may notify the Commission, but this notification is voluntary. However, not all combinations need to be audited unless the resulting combination exceeds the asset or turnover thresholds set by the Indian Competition Commission. The European Commission considers the following factors when regulating “combination”: 

1. Actual and Potential Competition with Imports. 
2. The level of barriers to entry into the market. 
3. degree of combination in the market; 
4. Degree of offsetting power in the market. 
5. Ability of the merger to significantly and materially increase price or profits. 
6. The effective level of competition that the market is likely to sustain. 
7. Availability of substitutes before and after pairings. 
8. market shares of the merging parties individually and as a group; 
9. A merger may eliminate a strong and effective competitor or market competitor. 
10. The nature and extent of vertical integration in the market. 
11. Type and degree of innovation. 
12. Whether the benefits of the combination outweigh the adverse effects of the combination. Therefore, competition law does not aim to eliminate mergers, but only to eliminate their harmful effects. In addition, the following provisions of the law deal with mergers of companies: 

 Section 5 of the Competition Act 2002 deals with ‘combination’, which defines combination with reference to India only and to assets and turnover in India and outside India. 

 Section 6 of the Competition Act 2002 stipulates that no person or firm shall undertake any concentration which has or may have a material adverse effect on competition in the relevant market  in India and such concentration is void. stipulated.

Merger Merit 

1. Market share increase 

 When companies merge, the new company gains more market share and becomes more competitive. 

2. Reduce operating costs 

 Companies can achieve economies of scale. B. Purchasing large quantities of raw materials that can lead to cost savings. Asset investments  are  spread across larger outputs, leading to engineering savings. 3. Avoid duplication 

 Some companies that make similar products may merge to avoid duplication and eliminate competition. This also leads to lower prices for  customers. 

4. Business expansion into new regions 

 A company wishing to expand  in a particular region can merge with another similar company operating in the same region to get the business back on track. 5. Prevention of closure of  unprofitable businesses 

 Mergers can save companies from bankruptcy and  save many jobs.

Disadvantages of  Merger 

1. Raise the price of goods and services 

 Mergers reduce competition and increase market share. This gives the new company exclusive rights and the ability to increase the price of its products and services. 

2. Create gaps in communication 

 Companies that agree to merge may have different cultures. This can create gaps in communication and impact employee performance. 

3. Create unemployment 

 In an aggressive merger, one company may choose to eliminate the other company’s under performing assets. As a result, employees may lose their jobs. 

 Four. hamper economies of scale 

 Synergies can be difficult to achieve when there is little commonality between companies. Also, large companies may not be able to motivate their employees and achieve the same level of control. Therefore, the new entity may not  achieve economies of scale.