The Companies Act,2013 has significantly replaced the 1956 act. It has
brought some major and efficient changes or evolution in the corporate world.
Among these changes, the evolution in the procedures of merger and acquisition
of companies is a significant change. By doing this the amendment act tries to
make the process of merger and acquisition smoother and easier.
The term 'merger' has not been defined anywhere in the act however, it implies
amalgamation of two or more companies to form a new company which automatically
receives all the resources/ assets of the companies merged.
Vodafone and Idea merged together to form 'Vi'.
Why companies merge?
- To kill competition. For example- Adidas acquired Reebok to compete with
- To reduce business operation cost;
- To expand market;
- For geographical expansion;
- To get technology, patent, copyright, and other assets
Why mergers fail?
- Wrong strategy;
- Wrong partner;
- Poor execution;
- Cultural unfit;
- Trust issues;
- Wrong due diligence
Types of mergers:
- Horizontal Merger- Here the companies merging together are part of same
- Vertical Merger- Backward integration
A is having a business of manufacturing steel pipes. For
manufacturing steel pipes he requires regular supply of steel, if he would merge
with the steel merger then it would be called as backward integration.
After manufacturing steel pipes if A merges with the seller of pipes, then it
would be called as forward integration.
When parties merging together are part of totally different industries.
When a car manufacturing company merges with a telecom company.
When companies are although part of different industries but their target
audience is same.
When a car manufacturing company merges with a car insurance company.
Market extension Merger:
When those companies come together which sell same products in different
markets. This is usually done the increase the size of market.
Product extension Merger:
When those companies come together whose products are closely connected with
each other and they operate in same market. For example- merger of Pizza Hut
When a private limited company merge with a public company so that the private
company could get easily converted into a public company without any complex
Warren Buffet merged a public limited textile company with an
insurance company without even changing its name. Currently it is known with the
name of Berkshire Hathaway.
Cross Border Merger:
Two firms belong to two different countries. It is a deal between a foreign
company and a domestic company. This trend has increased with the rise of
globalization. 1990s were known as the Golden decade of cross border merger.
Tata steel acquired UK based company for rupees 8 billion.
Advantages of Cross border merger:
Disadvantages of Cross border merger:
- Resource sharing
- to encourage entry growth
- Market extension
Air India case
- Cultural differences
- Different competition policy
- goal conflicts
- Different operating methods
After independence, India was served by two aviation companies: Air India and
Indian Airlines. Air India used to serve international market whereas the
domestic aviation was Indian Airline's department. After the opening of Indian
aviation sector for private players the competition became really tough.
In 2007, the Govt of India decided to merge Air India with Indian Airlines to
reduce the business operation cost. Since then Air India is globally recognized
brand name of the company merged together.
The merger had created a mega company with combined revenue of 15000 crore
Kingfisher Airlines and Air Deccan Case
In 2007, kingfisher airlines acquired a 26% equity stake in air deccan and
became the single largest stakeholder in the company. Kingfisher later increased
its stake to 46% and they renamed it as "Simply Deccan"
Air India And Tata Sons
Air India had a debt of 426 billion rupees, it was going through losses. The
govt decided to offer Air India to Talace Pvt Ltd. which is a subsidiary of TATA
group. Talace pvt ltd bought it at 18000 crore rupees.
Talace Pvt Ltd acquired 100% stake in the company on 27 January 2022.
Merger usually works as a famous English proverb "beacon of hope" meaning
something that holds the promise of hope for the companies which are at the edge
of losing their value. Its tremendous example has been discussed above wherein
Govt of India in 2007 merged Air India and Indian Airlines to save the public
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