MERGER: AN INTRODUCTION

In business oreconomics, a merger is a combination of two or more

companies into one largercompany, which might or might not be any
of the existing companies.

However, thereis no formal definition of ‘Merger’ and ‘Amalgamation’

in any of the Act laiddown by the parliament. The phrase Mergers and
amalgamations (abbreviatedM&A) refers to the aspect of corporate
strategy, corporate finance andmanagement dealing with the
combining of two or more different companies, whichcan aid, finance,
or synergize, to avail the predetermined purpose.

The wordamalgamation or merger has not been defined in the

Companies Act, 1956. HoweverSection 2(1B) of the Income-Tax Act,
1961 defines amalgamation /merger asfollows:

Amalgamation inrelation to companies, mean the merger of one or

more companies with anothercompany or the merger of two or more
companies to form one company or companieswhich so merge being
referred to as amalgamating company and the company withwhich
they merge or which is formed as results of the merger, as
theamalgamated company, in such manner that:

ϖ Allthe properties of the amalgamating company or companies

immediately before theamalgamation becomes the property of the
amalgamated company by virtue of theamalgamation;

ϖ Allthe liabilities of the amalgamating company or companies

immediately before theamalgamation becomes the liabilities of the
amalgamated company by virtue ofthe amalgamation;

ϖ Shareholdersholding less than three- fourth in value of the shares in

the amalgamatingcompany or the companies (other than shares
already held therein immediatelybefore the amalgamation by or by a
nominee for, the amalgamated company or itssubsidiary) become
shareholders of the amalgamated company by virtue of the
amalgamation.

RATIONALE OF MERGERS

The rationalebehind the merger strategy can be highlighted with the

help of the followingpoints:

¬ Synergistic operational advantages

 ¬ Economies of Scale (scale effect)

¬ Benefits of integration

¬ Tax and cost advantages

¬ Diversification

¬ Financial constraints for expansion

¬ Reduction in legal and professionalexpenses.

¬ Strengthening financial strength

¬ Increased market opportunities

¬ Development of a cohesive strategicapproach

¬ Reduction in production expenses.

¬ Reduction in selling expenses.

¬ Sustaining growth

¬ Survival

¬ Other structural reasons