This article was written by Sangram Jai Singh a student of N.I.U, Noida.
What are Mergers?
A merger is an agreement based upon two existing companies in pursuit of uniting to form an all new company. A merger is commonly done for mainly expansion purposes as to broaden the horizons while making an entry to new segments in furtherance of gaining market share, which is done for the purpose of pleasing the company’s shareholders and Create Value.
Reasons behind a Merger:
The Major reasons behind two companies merging to form a new single entity is to achieve broader economies of scale, broadening their horizons, acquiring strategic skills, and gain competitive advantage. In layman terms Mergers are a paramount tool considered by companies for the purposes of expanding their operations and rendering sustainable development.
The Legal Procedure for Bringing About Merger of Companies
Examining the Object Clauses:
While the consideration for a merger is contemplated, an examination of the memorandum of association must be conducted to search and check whether the power of a merger is vested within it, in furtherance for permitting perpetuity on business post the inception of the newly formed company. The very purpose of examining the object clauses of both companies is to render what all can be permitted, in cases where clauses of such nature ( to carry on business, trade and commerce) do not exist, then such situations would be subject to necessary approvals of the share holders, board of directors, and company law board.
Information to stock exchanges:
In the process of consideration taken for the merging of the companies, copies of all notices, resolutions, and orders should be properly communicated in good faith as to ascertain correct information to the stock exchange.
Confirmation of the Draft Merger Proposal by the respective Board of directors:
The Board of directors of both the companies must present the confirmation to the draft merger proposal and pass a resolution for authorizing its key managerial personal and other executives to pursue the matter further.
Application to high courts:
On the confirmation of approval of the draft Merger proposal by the respective board of directors, both the merging companies should file an application to the hon’ble High Court in the state that their companies’ headquarters are situated, in furtherance to convey the meetings of the respective shareholders and creditors for passing the Merger proposal.
Meetings notice dispatched to Shareholders and Creditors:
A notice to bring together all shareholders and creditors for a meeting with the purpose of the meeting should be dispatched between both companies with prior approval from the hon’ble High Court of the state, as to acknowledge and ascertain a twenty one days advanced intimation. Thus, such a notice of meeting should be published at two newspapers.
Shareholders and Creditors Holding of Meetings:
Shareholders and Creditors must hold meetings to be help by the proposed merger ing companies’ for streamlining the passing of the proposal of merger wherein 75% of shareholders and Creditors must vote either through proxies or by themselves in person to confirm the approval of the scheme of the finalization of Merger.
Submission of petition to High Court for the confirmation of the Merging Scheme:
Once the confirmation of approval by the shareholders and creditors has been fully finalized in the merger scheme the concerned merging companies must submit a petition to the hon’ble high court of that state for the primary purpose of declaring the confirmation of the Merging scheme, along with notice that has to be published in two newspapers.
Filing of the orders with the Registrar of companies:
The Hon’ble High court order of the concerned certified true copies must be filed with the registrar of companies within the limit specified by the hon’ble High court of that state.
All Assets & Liabilities of Both Companies Conveyed to the Merged Company:
After The Hon’ble High court of that state passes all final orders, henceforth all the assets and liabilities of Both Companies would be conveyed to the Merged Company.
Issue for subscriptions of shares and debentures:
Once the merged company comes into existence as a separate legal entity, the company should issue shares and debentures, thus these shares and debentures so issued will be listed on the stock exchange.
Procrastination in Mergers:
Around 80 to 85% of mergers occurring globally showcase that mergers are generally confirmed for approval in-between a time frame of thirty to sixty days at a maximum. However, in some circumstances mergers tend to take more time, therefore, for such circumstances laws permit sufficient time for the same. As per recommendations from the international Competition Network ( A Global competitive authority ) cases should be handled with straight forwardness within a time frame of 52 days and where such cases are complex in nature, here the cases can be dealt with within a period of 6 months, while on the other hand the Competition act of India, prescribes a total of 210 days for rendering a determination whether companies have been merged or not.
The fact as is, demarcates that the law prevalent is subject to its provision that the wait period is 210 days from the date of the filing of either notice or order from the commission, which ever is earlier.When the commission renders approval of a proposed merger on that day, it can be in effect the next day itself. Internally the time frame is limited within the overall gap of 210 days , to formulate the regulations that would be drafted by the commission itself, in order , so that the the companies wanting to merge would receiver confirmation of approval within a short period.
According to the Securities and Exchange Board of India ( here in after Sebi ) the time frame subjected to the provisions of the Competition act, 2002, do not take cognizance that are mandatory for complying under the statutory provisions of Sebi’s Substantial acquisition of shares and takeovers regulations,1997, due to the very fact that Sebi takeover regulations require the acquirer to utter all procedures relevant to the public offer inclusive of payment of consideration to the shareholders, who in return have accepted the offer, within the time slot of 90 days from the date of the public notice.thus maximizes the completion of a merger within a time frame of three to four months.As per regulation 22(12) of the Sebi takeover regulations, if the payments are not made out to the shareholders in the public offer within the specific date stipulated an interest is vested at a rate as may be prescribed by Sebi, therefore the competition commission time frame must be reduced from 210 to 90 days.
Mergers in the globalized market through Foreign direct investment are now more liberalized and it keeps growing to the elevation of companies talking deals of an alliance to form a new company together, as every company wants to deal and enter into all the aspects of the marketing chain. The Indian Market is witnessing a new era of next generation business of merging with others companies to form a new entity, to enter broader horizons