According to Section 232 of the Companies Act 2013, Merger refers to an arrangement by which two or more companies join together to form one company. In other words, a merger is the combination of two or more companies into a single legal entity under which transferor companies lose its existence and hence dissolved and the Transferee entity carry on the business of all the entities.
Some of the prominent examples of Merger are:
- Indus Towers with Bharti Infratel
- Indiabulls Housing Finance Limited (IBHFL) with Lakshmi Vilas Bank
- NBFC Capital First with IDFC Bank
- Flipkart with E-bay India
- IndusInd Bank with Bharat Financial
Normally Merger process is very lengthy and costly. There are some companies, which wants to go for merger but are hesitant of opting such a complex procedure. For this problem, the Companies Act 2013, comes out with a new kind of merger known as ‘Fast Track Merger’.
FOLLOWING ARE SOME BENEFITS OF FAST TRACK MERGER:
- Less cost intensive;
- Less time consuming;
- No requirement to apply to the NCLT;
- No requirement to issue costly public advertisement announcing the merger;
- No requirement to hold meetings of creditors or shareholders under the supervision of Court appointed Chairperson, Alternate Chairperson, Scrutinizer etc.
But following is the pre-eligibility conditions for the companies to opt ‘Fast Track Merger’ viz.,:
1. Merger between Holding Company and its Wholly Owned Subsidiary Company
2. Between two Small Companies*
* Whose Paid-up capital is not more than Rs.50 Lakh and Turnover Not more than Rs.2 Crore. (With effect from 01.04.2021 the above mentioned limit has changed to Paid-up capital not more than Rs.2 Crore and Turnover not more than Rs.20 Crore).
It means, if all the companies contemplating merger are having paid-up share capital upto Rs. 2 Crores with turnover of each company not exceeding Rs. 20 Crores, then these companies are eligible to avail ‘Fast Track Merger’ route.
Some of the examples are:
- MPS Telecom Private Limited and Oneworld Teleservices Private Limited with Optimus Infracom Limited
A Cross Border Merger (explained in simplistic terms) is a merger of two companies which are located in different countries resulting in a new company. A cross border merger involves an Indian company merging with a foreign company or vice versa.
A foreign company may with the prior approval of the Reserve Bank of India, merge into a company registered under Companies Act or vice versa.
FOLLOWING ARE THE SOME BENEFITS OF CROSS BORDER MERGER:
- Expansion into foreign markets;
- Technology switch;
- Foreign alternate earnings and accelerating increase;
- Increased customers base and Competitive gain.
There are two kinds of cross border merger:
- Inbound Merger means a cross-border merger, wherein the resultant company is an Indian company.
- An Outbound Merger means a cross-border merger wherein the resultant company is a foreign company.
Consideration under this kind of merger shall be paid in Cash, Depository Receipts or Partly in cash and partly in depository Receipts
Some of the examples are:-
- Jet Airways with Etihad
- Daiichi Sankyo and Ranbaxy
- Hindalco with Novelist
- Tata Motors with Jaguar Land Rover
REVERSE MERGER takes place when a healthy company merged with a financially weak company. In the context of the Companies Act 2013, there is no distinction between a merger or reverse merger because in either case one company merge with another company.
When a reverse merger of a sick company becomes effective, the healthy units lose its entity and surviving sick company retains its name. Main benefit of reverse merger is that Transferee Company is entitled to various tax benefits.
Some of the examples are:
- Tata Steel with Corus
- ICICI Ltd. merged with its arm ICICI Bank
- Ted Turner with Rice Broadcasting
- Rodman & Renshaw with Roth Capital
If the Central Government is satisfied that it is in the interest of public, where two or more companies shall amalgamate into a single company with such constitution, property, rights, powers, interests, privileges, liabilities and obligations as specified in the order by the government, then such amalgamation is considered to be valid and in the interest of public. Usually, it takes place in Public Sector Banks and PSUs.
Some Example of this kind of Merger:
- Canara Bank with Syndicate bank
- Union Bank of India with Aandhra Bank and Corporation Bank
- Indian Bank with Allahabad Bank
- Tech Mahindra with Satyam Computers
There are many reasons which prompt the Companies to go for merger. The reason may differ from company to company but automatically after mergers an immediate goal is achieved i.e., automatic growth and vision of the entity. With the advent of economy, more and more companies are opting for restructuring and merger. India is the fast developing economy of the World and that is why it is called that ‘Merger is the demand of the day and future of India’.
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TEAM SIGMA LEGAL