PLAUSIBLE AND DUBIOUS REASONS FOR MERGERS

1. PLAUSIBLE REASONS
&
DUBIOUS REASONS FOR MERGERS
Prakyath
IInd M.Com, Roll No. : 15108
Poornaprajna Evening College
Poornaprajna Post –graduation Centre , Udupi

2. MERGERS AND ACQUISITIONS :
 Mergers :
Two or more corporate entities coming together to form
one entity
 Absorption : one company acquiring another company
 Consolidation : two or more companies combining to form
new company
 Amalgamation : the legal name for mergers in India
 Acquisitions :
Purchase of a company/unit/plant/assets.
 Sometimes results in mergers

3. TYPES OF MERGER ACTIVITY :
 Horizontal Mergers : Two or more companies engaged
in the same businesses or Two or more companies that
are in direct competition and share the same product
lines and markets (Reliance – IPCL)
 Vertical mergers : Two or more companies linked by
value chain (AOL – Times Warner)
 Concentric mergers : Two or more companies in related,
though not the same businesses (P&G - Gillette)
 Conglomerate mergers : Two or more companies in
unrelated fields (Tata Sons – VSNL)

4. PLAUSIBLE REASONS FOR MERGER :
 Strategic Benefits :
 Enhance ‘Market Power’ (Sterlite – Hindustan Zinc, Reliance
– IPCL, Grasim – Ultratech Cements)
 Pre-empt competition (eg. Indial Oil – IBP Ltd.)
 Timing advantage (ICICI Ltd. – Anagram Securities)
 Economies of Scale :
 Better utilisation of mfg capacity (eg. JISCO – SISCO ),
distribution networks (P&G – Gillette), other facilities,
services
 Usually observed in horizontal mergers
 Economies of scope :

5. CONTD…. PLAUSIBLE REASONS FOR
MERGER :
 Complementary Resources :
 Mahindra & Mahindra and Jiangling Motors, China
 Star TV – Balaji Telefilms
 Tax Shields :
 Savings on direct, indirect taxes (ex: RIL – Reliance
Petrochemicals)
 Utilisation of surplus funds :
 Reliance Capital – Adlabs
 Managerial Effectiveness :
 The Mittal Steel story?

6. DUBIOUS REASONS FOR MERGER :
 Diversification :
 Let the shareholder decide……
 Lower financing cost :
 At the expense of the better rated company…..
 Earnings growth :

7. TECHNICALITIES OF A MERGER :
 Legal Procedure :
 Considerations – Companies Act, 1956, Stock Exchanges, SEBI
Takeover code
 Tax Aspects :
 Exemption in capital gains, subject to conditions
 Allowance of set-off of carried forward depreciation and
losses, subject to conditions to the amalgamating company
 Accounting for amalgamations :
 Two methods – Pooling of interest, Purchase method

8. THANK YOU !!!...