CORPORATE ACCOUNTSNames - Subhanil Bhadra, Dhiraj AgarwalSec - F1PPT TOPIC – Differentiate between external and internal reconstruction A live case study on amalgamation/acquisition/merger . “Examples of recent amalgamation”
What is “Reconstruction of a company”??A term used to describe the drastic formalchanges in a company’s capital structure as aresult of certain circumstances.
DIFFERENCE BETWEEN INTERNAL &EXTERNAL RECONSTRUCTION. INTERNAL RECONSTRUCTION EXTERNALRE CONSTRUCTION1) No new company is formed. 1) A new company is formed by The existing company the existing shareholder of the continues as a going concern. old company to take over the2) The ailing company will not give assets and liabilities. its liquidation under the capital reduction scheme. 2) The ailing company goes into3) Involves complying the liquidation. requirements under the Companies Act. 3) There is no need to comply with particular clause in the Companies Act.
AMALGAMATION"blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings. There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company”.
A live case study on amalgamation/acquisition/mergerCompany going public through an AmalgamationBiosign Technologies Inc.CNSX Symbol - BIOIndustry: TechnologyStart of Trading: August 21, 2006Initial Financing Raised: $6,000,000
Biosign amalgamated with an inactive former Capital PoolCompany (CPC) on the TSX Venture Exchange that had been unable tocomplete its required qualifying transaction within the prescribed timelimits and had been delisted from the TSX Venture Exchange. BiosignTechnologies Inc. of Toronto completed its “going public” transaction onCNSX through a reverse take-over transaction. The advantage for Biosignin completing the amalgamation with the former company was thatregardless of the delisting it remained a "reporting issuer", which enabledit to list quickly and easily on CNSX - Canadian National StockExchange. As part of the amalgamation transaction and CNSXlisting, Biosign was able to complete a $6,000,000 private placementfinancing.
"Biosign in the health market is about standards, transparency, disclosure and interoperability and we saw the same commitment at CNSX for our financial market. There are no broker sponsor requirements nor arbitrary rules and procedures - the listing criteria is the listing criteria - what you see is what you get. This resonates with us in a world where clear strict criteria sets the tone for globalization of products and services. So for us there was a certainty of completing the transaction in an orderly fashion which wouldnt distract us from our business execution. For our shareholders it provided a marketplace where they not only could effect auction market trading but could see all the regulatory filings and press releases as well as our CNSX monthly reports to help them keep up with our progress." - Richard Potts, CEO, Biosign Technologies Inc.
MERGERThe combining of two or more companies, generally byoffering the stockholders of one company securities in theacquiring company in exchange for the surrender of theirstock.
MERGERCASE STUDY OF LAXMI NIWAS MITTAL: There was a hue and cry when Mr. Laxmi Niwas Mittal tookover Luxembourg-based Arcelor Steel. Mittal Steel made adaring $ 33 billion offer to take over its rival Arcelor. It was theboldest offer by any NRI to be made. There were lots ofpractical problems involved in acquisition. The French Govtwent to the extent of protecting their company and adoptedvarious techniques to prevent the acquisition.
Mr. Mittal pursued up to the hilt. He allayed the apprehensions ofthe employees and also that of shareholders of Arcelor and afterprolonged battle the company was acquired and the transition hasbeen made smooth. Ultimately he created 100 million tonne steelcompany. In one situation, the chopper in which LN Mittal wastraveling towards Paris was force landed by telling them that thechopper entered the restricted area. The captain of the chopperwas so upset that he resigned to avoid such pressures. Then againArcelor tried to negotiate the deal with a Russian Steel giantSeverstal who was one of its competitors in order to checkmateMittal Steel. It was the toughest job for the Mr.Mittal to get themerger process evened out. Ultimately he succeeded in his bid andhas become the President and CEO for Arcelor Mittal.
Now LN Mittal is the only Indian who controls any particular sector i.e.Steel sector in the world. No other Indian in the earth controls anyparticular sector but it has been made possible only for Mr.Mittal becauseof his passion and perseverance to become number uno steel czar in theworld.The global scenario has changed drastically especially after theliberalization and privatization in India. The rapid growing technology hasmade the globe smaller. People began understanding, respecting andadopting the cultures of other countries. At the global level it is essentialto focus on multicultural skills. The cultural gap amongst all the countriesis getting narrowed down. And there are more efforts and avenues tograsp various cultural diversities across the world. Many companies acrossthe world are coming to India and setting up their shops. It demonstratesthe strength of the Indian economy.
In the past we have seen global MNCs and now we are witnessingIndian MNCs shopping across the globe and acquiring number ofstrategically significant companies. In the past Indian companies fellprey to global predators and now there is a U turn where Indiancompanies have turned out to be predators.The Indian economy is bullish with the GDP growing and inflation iswithin the healthy limits. Indians need not to go overseas to work.Rather they should work with in India itself so as to make Indianeconomy more vibrant. There are plenty of opportunities with inIndia itself. The foreign countries are getting more benefits bymaking use of Indian talent and expertise. What we get in return isfar lesser than what we Indians invest in terms of abilities andcapabilities to other countries. It is time Indians realized theirinherent strengths and stayed in India itself.
ACQUISITIONThe purchase of one corporation by another, through either the purchase of its shares, or the purchase of its assets .Theres only one real way to achieve massive growth literally overnight, and thats by buying somebody elses company. Acquisition has become one of the most popular ways to grow today. Since 1990, the annual number of mergers and acquisitions has doubled, meaning that this is the most popular era ever for growth by acquisition.
ACQUISITIONCASE STUDY: Tata Motors Acquisitionof Jaguar and Land Rover in 2008 VenkitVIntroductionIndia-based Tata Motors Ltd. successfully acquired twoBritish automotive brands – Jaguar and Land Rover (JLR), inJune 2008 from Ford Motors for $ 2.3B. As part of thedeal, Tata Motors gained 100% stake in companies, 3 UKplants, 2 advanced design and engineering centers, 26national sales companies, IP rights, $1.1B in capitalallowances for taxes, and $600M in pension contributions.
In order to facilitate the deal, Tata Motors raised $3B throughbridge loans through a number of banks, including JPMorgan, Citigroup and State Bank of India. Although analysts wereskeptical about the deal mainly due to the economic slowdown inthe major selling markets, Europe and North America, Tata Motorshad accumulated immense cash reserves (D/E ratio of 0.56) toraise the required funds without endangering its own finances.Ford Motor Company is the third largest automobile producerworldwide and ten times the size of Tata Motors. The company isknown for low-priced automobile with standard interchangeableparts, virtual manufacturing, safety focused and low fuelconsumption. It acquired JLR into its new group PAG, whichcomprised of other brands including Aston Martin, Volvo andLincoln. In September 2006, Allan Mulally cleared the sale ofbrands within PAG as part of restructuring exercise called “WayForward” in order to become more competitive. The decisionhighlighted the fact that Ford had not accomplished its goal ofpenetrating into luxury brands. Enclosed in the appendix is thetimeline of major highlights for JLR and the deal process followedby Tata Motors.Assess the pros and cons of Tata Motors’ acquisition of Jaguar andLand Rover.
EXAMPLES OF RECENT AMALGATION1) Hutch Essar into vodafone