INTRODUCTION TO BUSINESS ORGANIZATION

1. ipr
Course: BBA I
Subject : Introduction to Business Organization
Unit: 5

2. Merger
 “It involves combination of all the assets, liabilities, loans, and
businesses (on a going concern basis) of two (or more) companies
such that one of them survives.”
 Merger is primarily a strategy of inorganic growth.
 Example:
India’s largest private sector corporate entity Reliance Industries
Limited (RIL) is indeed a result of many mega mergers of group
companies into RIL.

3. Varieties of merger:
1.Horizontal Merger:
– Companies producing similar goods & services
– Direct competition
– Efficient economies of scale
– Eg: Daimler-Benz and Chrysler
– Effect can be extremely small or extremely huge
Merger

4. Varieties of merger:
2. Vertical Merger:
– Same business but on different levels
– Different goods or services for same finished product
– Forward integration: the business is combined with
the distributor (Customer & a company)
– Backward integration: the business is combined with
the suppliers (producer & a company)
– Reason:
• to ensure quality and availability
• Reduce transaction cost
Merger

5. Varieties of merger:
3. Conglomerate Merger:
– Involved in totally unrelated business
– Types: Pure & Mix
• Pure: Companies that have nothing in common
• Mix: Both look forward to product extension
– Not competitors
– Each business in conglomerates run separately
– Reasons:
• Reduce cost by using fewer resources
• Risk is mitigated (reduced)
– Too difficult to manage
Merger

6. Acquisition
Acquisition is an attempt or a process by which a
company or an individual or a group of individuals
acquires control over another company called
‘target company’.
Acquiring control over a company means acquiring
the right to control its management and policy
decisions.
It also means the right to appoint (and remove)
majority of the directors of a company.
In acquisition, the target company’s identity
remains intact.

7. Acquisition conti
Ways to acquire a control over a company (a target company):
By acquiring ,i.e. purchasing a substantial percentage of the voting capital
of the target company.
By acquiring voting rights of the target company through power of
attorney or through a proxy voting arrangement.
By acquiring control over an investment or holding company, whether
listed or unlisted, that in turn holds controlling interest in the target
company.
By simply acquiring management control through a formal or informal
understanding or agreement with the existing person (s) in control of the
target company.

8. Ways to acquire a control over a company (a target company):
By acquiring ,i.e. purchasing a substantial percentage of the voting
capital of the target company.
By acquiring voting rights of the target company through power of
attorney or through a proxy voting arrangement.
By acquiring control over an investment or holding company, whether
listed or unlisted, that in turn holds controlling interest in the target
company.
By simply acquiring management control through a formal or informal
understanding or agreement with the existing person (s) in control of
the target company.
Acquisition conti

9.  Acquisition of a target company through acquisition of
its shares
The most common method is to acquire i.e. purchase
substantial voting capital (i.e. equity capital) of the target
company.
What percentage would be considered as adequate to
qualify as controlling interest?
 To understand that, one should understand various levels
or degrees of control that are relevant.
Acquisition conti

10.  Absolute control
This would mean an unfettered right to take any decision.
However, in such a case, the company cannot become a listed
company or continue to be listed company if it was listed earlier.
The condition of minimum two members for a private company or
seven members for a public company will have to be complied with.
Acquisition conti

11.  Practically Absolute Control
• This can be defined as an ability to get any and all resolutions
passed in the general body meeting of the shareholders
• Most of the important decisions, such as further issue of capital
other than a rights issue, buy-back of shares, reduction of capital,
delisting of the company, etc., can be taken, only by passing a
special resolution.
• A special resolution can be passed if at least 75 per cent of the
shareholders by value votes in favour of a special resolution.
Acquisition conti

12.  General control over a company
 Those decisions which do not require passing of a special resolution under the
Companies Act, 1956, but which nevertheless require shareholder’s approval have to
be taken by passing an ordinary resolution.
 An ordinary resolution gets passed by a simple majority of the members present and
voting, either in person or through proxies at the general meeting. The decisions which
require passing of an ordinary resolution are approval of annual accounts, declaration
of dividend, issue of bonus shares, appointment of directors, etc.
 In this case, one does not need to acquire 51% of the voting capital to have a control
over a company.
 In India, in terms of the regulations promulgated by the Securities and Exchange
Board of India (SEBI), no person can acquire 15 percent or more of share capital
(having voting rights) of a company without making an open offer to public
shareholders to acquire minimum 20 percent of the shares of the company from
them.
Acquisition conti

13.  Acquisition of a target company through power of
attorney, etc.
This is not a commonly used way of effecting acquisition of a
company.
It could be used only as a short-term tactic, probably as a precursor
to the substantial acquisition of shares from existing promoters or a
faction of the existing promoters, who, pending the conclusion of
Memorandum of Understanding (MOU) to sell their shares to the
acquirer, may allow him to vote on their behalf on certain key
resolutions.
Acquisition conti

14.  Acquisition of a target company through acquisition of an investment or
holding company which is controlling the target company.
 Acquisition of a target company through formal or informal agreement
 Some of the significant acquisitions in Indian context in recent
past :
Acquisition of Corus by Tata Steel
Acquisition of Novelis by Hindalco
Acquisition of Spice Communication by Idea Cellular
Acquisition of Ranbaxy by Daiichi Sankyo
Acquisition of Hutchison Essar by Vodafone
Acquisition of Sahara Airlines by Jet Airways
Acquisition of Deccan Airways by Kingfisher Airlines
Acquisition conti

15. References
1. Fundamentals of Business Organization and
Management by Y.K.Bhushan- Sultan Chand
publications
2. Principles & Practices Of Management by L M
Prasad – Himalaya Publishing House

16. Thank You!!