Page 34 - Banking Finance December 2020

ARTICLE

mobile network markets world over where only four or five all companies except one go into liquidation and loose their
players are left and operating in any country. respective separate identity. For example, one bank acquires
the other. A + B= A: Here, two entities A and B merge such
In Indian industry, the pace for mergers and acquisitions that one , says B loses entity, and other entity A become
activity picked up in response to various economic reforms enlarged one. In this case, A is the acquiring company and
introduced by the Government of India since 1991, to B is the target or acquired company. This is generally called
facilitate liberalization and globalization. The Indian as absorption (i.e. B is absorbed by A) or 100% or 'complete
economy has undergone a major transformation and takeover' of one company by the other.
structural change following the economic reforms, as "size
and competence" have become the focus of business Consolidation: It is a combination of two or more
enterprises in India. Indian companies realized the need to companies into a 'new company'. In this form of merger, all
grow and expand in businesses that they understood well, companies are legally dissolved and a new entity is created
in order to face the growing competition. or all the existing companies, which combine, go into
liquidation and form a new company with a different entity.
Several leading corporate have undertaken restructuring Here, the acquired company transfers its assets, liabilities
exercises to sell off non- core businesses, and to create and shares to the acquiring company for cash or exchange
stronger presence in their core areas of business interest. of shares. Consolidation i.e. two or more banks combine to
Mergers and acquisitions emerged as one of the most form a new entity. In India the legal term for merger is
effective methods of such corporate restructuring, and amalgamation.
became an integral part of the long-term business strategy
There are different types of concept in which merging of
of corporate sector in India. Over the last decade, mergers
and acquisitions in the Indian industry have continuously the companies take place like, Horizontal Merger, Vertical
Merger, Conglomerate Merger, and Reverse Merger.
increased in terms of number of deals and deal value.
Acquisition in a general sense means acquiring the ownership
A survey among Indian corporate managers in 2006 by
in the property. It is the purchase by one company of
"Grant Thornton" found that Mergers & Acquisitions are a controlling interest in the share capital of another existing
significant form of business strategy today for Indian
company. Even after the takeover, although there is a
Corporate sectors. Consolidation through mergers and change in the management of both the firms, companies
acquisitions is considered as one of the best ways of
retain their separate legal identity. The Companies remain
restructuring structure of corporate units. M&A gives a new independent and separate; there is only a change in control
life to the existing companies.
of the Companies.
What is Merger and Acquisition? Principle behind any M&A is 2+2=5
A merger is a combination of two or more companies into one
company. It may be in the form of one or more companies being
merged into an existing company or a new company may be
formed to merge two or more existing companies. The Income
tax Act, 1961of India uses the term 'amalgamation' for merger.

Thus, Merger or Amalgamation may take any of the
two forms:
I. Merger or Amalgamations through absorption
II. Merger or Amalgamations through consolidation

Absorption: It is a combination of two or more companies
into an 'existing company. In a merger through absorption,

34 | 2020 | DECEMBER | BANKING FINANCE