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CONTENTS
1)MERGER
●Who gives the approval to merge companies?
●Types of mergers
●Why do companies merge?
●Can an Indian company merge with a foreign
company?
2)DEMERGER
●Types of demerger
●Why do companies demerge?
3)CONCLUSION
MERGER:
Merger means, joining two or more companies together, this act is
simply called merger. When we talk about in business terms what is
merger?
Basically, merger is an act in which more than two companies
merge/united with each other to form or to make a new single
company or a single basis. A company merges with another company
for so many reasons, for so many benefits, because when one company
merges with another company, its powers, their benefits will increase
accordingly. Every company needs growth in its sector. To accelerate
company growth two or more companies come together, and merge
together to make a new single company. For example- Vodafone and idea mobile phone companies.
1
2
3
4
5
CONTENTS
1)MERGER
●Who gives the approval to merge companies?
●Types of mergers
●Why do companies merge?
●Can an Indian company merge with a foreign
company?
2)DEMERGER
●Types of demerger
●Why do companies demerge?
3)CONCLUSION
MERGER:
Merger means, joining two or more companies together, this act is
simply called merger. When we talk about in business terms what is
merger?
Basically, merger is an act in which more than two companies
merge/united with each other to form or to make a new single
company or a single basis. A company merges with another company
for so many reasons, for so many benefits, because when one company
merges with another company, its powers, their benefits will increase
accordingly. Every company needs growth in its sector. To accelerate
company growth two or more companies come together, and merge
together to make a new single company. For example- Vodafone and
Idea mobile phone companies.
Merger is also called Amalgamation. Under THE INCOME TAX ACT,
1961(ITA) Amalgamation is defined as the merger of one or more
entities with another company, or the merger of two or more entities
forming one company.
WHO GIVES THE APPROVAL TO MERGE COMPANIES?
In India, The NCLT (NATIONAL COMPANY LAW TRIBUNAL) has to
mandate approval of the merger. It means the company needs NCLT
approval for the merging process.
For ex: X and B are two different companies or different firms but they
want to merge with one another to form a new company Z as a new
and independent company.
TYPES OF MERGERS:
1. Horizontal Merger: When two competitors merged with each
other, it is called a horizontal merger. It means when both with
each other to promote growth, to increase market share, etc. E.g.
Lipton India, Vodafone and Idea, and Maruti and Suzuki.
2. Vertical Merger: A merger where two companies may not
compete with each other. For example- a company has the
business of mobile phones, and a company has the business of
parts of mobile phones, both companies have different businesses
but have the same industry supply chain.
3. Product extension Merger: A merger between the same
companies in the market with the aim of expanding market reach.
4. Congeneric Merger: It means two same companies in the same market but companies that don’t give the same product merge with each other to increase their market
share.
WHY DO COMPANIES MERGE?
There are so many reasons for a company to merge with another
company. Mergers are done to gain, to increase market share, to
increase the company economy, to acquire or to gain new knowledge or
technologies because every company has its own technology, to create
a synergy, for more resources, to diversification in the company
business, to remove or two eliminate the competition in the market, for
good investment companies merge with each another.
CAN THE INDIAN COMPANY BE MERGED WITH THE FOREIGN
COMPANY?
Only foreign companies can be merged with Indian companies. It means
an Indian company can not merge with a foreign company but a foreign
company can. A Foreign Company can be a transferor company but can
not be a transferee company. (JINDAL SAW LTD. ALLAHABAD HIGH COURT. DEMERGER:
If a merger is like a marriage then a demerger is like a divorce.
Demerger is the opposite of a merger in simple words. Demerger means
where a business or a company splits up or is broken into parts, to work
alone or to be sold. A company or a business is split up into separate
units. This usually happens when the profits of a successful company
get affected by the other merged company. It means when a company profits, company share gets affected or gets sucked by the other
company which results in loss, in such cases, companies demerge
Popular demergers in India are Vedanta Limited, Piramal Enterprises,
Dhampur sugar mills, etc. SECTION 2(19AA) OF THE INCOME TAX ACT
defines demerger, ‘demerger’ in relation to companies means the
transfer, pursuant to a scheme of arrangement under section 391 to
394 of the Companies Act, 1956 by a demerged company of its one or
more undertakings to the resulting company in such a manner that,
1. All the property of the undertaking, being transferred by the
demerged company, immediately before the demerger, becomes
the property of the resulting company by virtue of demerger.
TYPES OF DEMERGER:
1. Spin-off: It means when a parent company separates from
another company and once they are spun off, both companies act
as a separate and individual companies. Spin-off results in the
creation of an independent company.
2. Split-off: It is a type of business plan in which a company splits
up into two or more independent companies by which the parent
company comes to an end.
WHY DO COMPANIES DEMERGE?
A company demerges with another company because of so many
reasons. Generally, companies demerge because they want to focus on
companies core operations, to raise capital, one main benefit or
advantage of the demerger is to provide so many benefits for the
shareholders. After demergers, companies have their own business. and strategies for business investment. Demergers promote
expansion for the companies.
The Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries
Ltd,
Court laid down the following principles:
. The Statutory provisions should be complied with.
. The class who attended the meeting must fairly represent all the
stakeholders and they should act in a bona fide manner.
. The arrangement should reasonable.
.The Scheme should not be contrary to the public interest or any other
law.
CONCLUSION:
We conclude that mergers and demergers are like north and south
poles, they are opposite to each other. Merging and demerging
companies leads to growth in their business. There are many
advantages as well as disadvantages to merging and demerging a
company. Merging and demerging a company can be done in different ways.