Merger in Joint Stock Companies Essay Example

liabilities from the merging companies to the merged company, where shareholders must own at least nine-tenths of the shares in the merged company.

There are two types of mergers or amalgamations: merger through absorption and merger through consolidation. In a merger through absorption, multiple companies combine into an existing company, resulting in all but one company losing their identity. On the other hand, in a merger through consolidation, multiple companies come together to establish a completely new company.

In this type of merger, a new entity is formed by legally dissolving all companies involved. The acquiring company receives the assets, liabilities, and shares of the acquired company in exchange for cash or shares. There are three main types of mergers: horizontal merger, vertical merger, and conglomerate merger. A horizontal merger takes place when two competing firms within the same industry and at the same stage of the industrial process merge together. These mergers aim to achieve economies of scale by eliminating duplication, expanding the product line, reducing working capital investment, eliminating competition, cutting advertising costs, reaching more market segments, and gaining better market control.

Vertical merger involves one company taking over or merging with another company in order to achieve backward integration or assimilation of supply sources, or forward integration towards market outlets. This type of merger allows the acquiring company to gain a strong position in an imperfect market for its intermediary products and control over product specifications. However, the potential negative effects of vertical integration, such as increased barriers to entry and discrimination between purchasers, must be considered. On the other hand, conglomerate merger refers to the combination of two companies operating in unrelated industries.

The overall

stability and balance in the acquirer company's diverse product portfolio and production processes are enhanced through mergers and acquisitions. This allows the acquired firm to access the conglomerate's existing productive resources, resulting in technical efficiency. Additionally, it can benefit from the greater financial strength of the acquirer, providing a financial basis for expansion and potential acquisition of competitors. These processes also lead to changes in the structure and behavior of acquired industries, opening up new possibilities.

Regarding the legal procedures for mergers or acquisitions, the Companies Act, 1956 states that amalgamation can only take place if permitted under the memorandum of association of the involved companies. The acquiring company should also have permission in its object clause to conduct the acquired company's business. If these provisions are absent, permission from shareholders, board of directors, and the Company Law Board is necessary before executing the merger.

When considering a merger, it is crucial to notify the stock exchanges where both companies are listed. The board of directors from each company must endorse the initial proposal for merging and authorize management to proceed. Once approved, an application must be submitted to the High Court for further approval of the proposed amalgamation. Separate meetings should be held by each company for shareholders and creditors to give consent to the merger plan. A minimum of 75 percent of shareholders and creditors must vote in favor of the scheme during these meetings, whether in person or through a proxy. After receiving approval from both parties, the companies can then request that the High Court sanction their amalgamation scheme. However, this sanction will only be granted if the High Court determines that the

scheme is fair and reasonable.

The court will notify the date of the hearing in two newspapers and inform the regional director of the Company Law Board. Once ordered by the court, certified true copies will be provided to the Registrar of Companies. The acquiring company will transfer the assets and liabilities of the acquired company based on an approved scheme, starting from a specified date. As per this proposal, shares, debentures, and/or cash will be exchanged by the acquiring company for shares and debentures of the acquired company. Following that, these securities will be listed on the stock exchange.

Advantages of Mergers ; Acquisitions:
Economies of scale occur when an increase in production volume leads to a decrease in the cost per unit. This is because, in mergers, fixed costs are spread out over a larger production volume, resulting in a decline in unit production costs. Economies of scale can also arise from other indivisible factors such as production facilities, management functions, and resources. This is because the combined firm utilizes a given function, facility, or resource for a larger scale of operations.
Operating economies occur when the combination of two or more firms leads to cost reduction. In other words, a combined firm can avoid or reduce overlapping functions and consolidate its management functions (such as manufacturing, marketing, R;D), thereby lowering operating costs.

Synergy is the term used to describe a situation where the merged company is valued higher than the sum of its individual parts. It involves advantages that go beyond economies of scale. While operational efficiencies are one form of synergy, there are other sources as well, including enhanced managerial abilities, creativity, innovation,

and expanded market coverage resulting from the complementary integration of resources and skills. This also leads to a wider range of opportunities. However, mergers and acquisitions also come with potential drawbacks like diseconomies of scale if the business becomes too large and leads to increased unit costs.

When different types of businesses clash, it can hinder integration and negatively impact motivation. This clash may result in worker redundancies, especially at the management levels. Furthermore, conflicts in objectives between businesses can complicate decision-making and disrupt overall operations.