Introduction to

Mergers and
Amalgamation
Unit 2
Subject – Mergers and Acquisitions
Specialisation – Business and Corporate Laws
Semester IX
Curated by – Prof. Shreya Madali
- Between 2015-2019 India has witnessed more than 3,600 M&A deals with an aggregate value of more
than USD 310 billion
- Sectors such as industrial goods, energy, telecom & media represented more than 60% of deals by
volume and value
- A few of the largest deals include Walmart’s USD 16 billion acquisition of Flipkart (2018),
- the USD 13 billion acquisition of Essar Oil by a Rosneft-led Russian consortium (2017),
- Adani Transmission’s USD 3 billion acquisition of Reliance Infrastructure’s integrated Mumbai power
distribution business (2018).
- Lately, the government’s reform agenda and the policies were largely formulated to encourage foreign
investments.
- There was also a surge in M&A activity due to the new bankruptcy law, the faster pace of approvals
initiated by the government as part of its ease of doing business in India campaign and the relaxation in
Foreign Direct Investment (“FDI”) norms.
- However, India started seeing a slump in deal making in the third and fourth quarters of 2019.
- Inter alia the US-China trade war, Brexit, the tense banking and business situation in Hong Kong, the
drone strike on Saudi Arabia’s oil facilities had indicated a dawning recession.
- In addition, the COVID-19 outbreak which disrupted the world in 2020 has not left the Indian economy
untouched.
- Several M&A deals in the country had been stalled in the wake of this pandemic including the
- The term ‘merger’ is not defined under the Companies Act, 2013 (“CA 2013”) or
under Income Tax Act, 1961 (“ITA”).
Merger - As a concept, ‘merger’ is a combination of two or more entities into
one - the desired effect being not just the accumulation of assets and liabilities
of the distinct entities, but organization of such entity into one business.
- The possible objectives of mergers are manifold - economies of scale,
acquisition of technologies, access to varied sectors / markets etc.
- Generally, in a merger, the merging entities would cease to exist and would
merge into a single surviving entity
Acquisition - An ‘acquisition’ or ‘takeover’ is the purchase by one entity, of
controlling interest in the share capital or of all or substantially all of the assets
and/or liabilities, of the target entity.
- A takeover may be friendly or hostile and may be structured either by way of
agreement between the offer or and the majority shareholders or purchase of
shares from the open market or by making an offer for acquisition of the target’s
shares to the entire body of shareholders

Amalgamation - is defined as the combination of one or more companies into a

new entity.
• Two or more companies join to form a new company
• Absorption or blending of one by the other
- Amalgamation is done between two or more companies engaged in the same line
of activity or has some synergy in their operations.
- Again the companies may also combine for diversification of activities or for
Difference Between Mergers, Acquisitions and Amalgamation
Merger (Absorption) Acquisition Amalgamation (Consolidation)
At least two entities are involved and At least two entities are involved and
one will cease to exist. A+B ———— At least two entities are involved and create a new entity after consolidation.
> A or B one takes over the assets and shares of
No. of Entities Involved
others and influences the voting rights. A+B ———–> AB or C
All companies might exist together.

Shares of the absorbing company are Share of the new entity is given to the
Buyer companies purchase more than
Impact on Share given to the shareholders of the share of existing companies.
% share of the target company.
absorbed company.
The merging companies are of Bigger companies acquire smaller
comparable size. companies. The participating companies are of
Size of Companies comparable size and have similar terms
of association.

Only one company exists. Absorbing Acquired companies cease to exist and New entities exist and existing
companies cease to exist.
Resultant Entities companies absorb absorbed company become part of acquiring companies.
and continue its existence.
Initiated by both parties with equal
Absorbing companies initiate the deal. An acquiring company initiates the deal
interest.
Drivers for association with or without the consent of the
acquired company.
One firm acquires assets/liabilities of
Assets & Liabilities of absorbed Assets and Liabilities of the existing
Financial Practices companies are absorbed by the the acquired companies. companies are transferred to new
absorbing company. entities.
Brief History of Mergers and Acquisitions - There have been five clear waves
1. The railroad wave (approximately 1895–1905) - In the United States there was a first
major wave of mergers between 1890 and 1910. This wave was fueled by the
completion of the transcontinental railway system that linked cities across the entire
US for the first time. This continental transport system created an integrated national
market in the US. Rail links provided the opportunity for local or regional companies to
evolve into fully national companies. This wave is sometimes referred to as the railroad
wave. It was characterized by both vertical and horizontal integration mergers. Some
global brand names were established through the horizontal integration of leading
producers during this wave. Examples include Coca-Cola and General Electric
2. The automobile wave (approximately 1918–1930) - The next major merger wave in
the US was generated by the expansion in the general availability of automobiles in the
1920s and early 1930s. Whereas the railway system had linked cities together across
the continent, the widespread availability and affordability of automobiles allowed
local customers to gain access to a larger number of local and regional outlets.
Automobiles also enabled companies to make much more use of professional sales
teams. The widespread use of trucks and delivery vans stimulated companies based
particularly in food and food processing. This wave is sometimes referred to as the
3. The conglomerate wave (approximately 1955–1970) - The 1920s wave was
followed by the 1960s wave. TLegislation in the US at that time made it difficult
for companies to integrate horizontally or vertically. At the same time the dynamic
US economy provided the incentive for rapid growth. This induced companies to
form mergers and acquisitions with other companies operating outside the
acquirer’s normal sphere of operations. This wave was characterized by a large
number of management problems as acquirers experienced difficulty in
managing their newly acquired assets, and there were numerous problems and
failures.
4. The mega-merger wave (approximately 1980–1990) - The 1980s was a decade
of rising share prices. Relatively low interest rates made acquisition finance
readily available. This fueled a considerable number of cash-financed
acquisitions of firms that were relatively low performers. There were examples
of so called mega-mergers, which were indeed carried out on a very large scale
by the standards of that time. These actions actively encouraged large-scale
horizontal mergers. In the US competition was significantly reduced in a number
of industries, including oil production and chemicals.
5. The globalisation wave (approximately 1994 to the present) - The current
globalisation wave started in the mid 1990s and expanded rapidly though the last few
years of the 20th century and into the early years of the 21st century. Market growth
was slow. Mergers and acquisitions allowed companies to grow in otherwise slow
markets. Interest rates were very low. Companies were able to take out relatively
large loans at much lower interest rates than would have been possible just a few
years previously. The relatively low cost of finance made mergers and acquisitions
more of an economic reality for a wider number of companies.
Supply exceeded demand in most industries, putting pressure on prices and
generating a necessity to reduce costs. One way of achieving this was through the
scale economies that could be generated by successful mergers and acquisitions.
By the late 1990s many industries were mature or close to being mature; they
realized that scale economies through mergers and acquisitions provided a viable
way of reducing costs and increasing competitiveness.
The growth of computers and IT made an increasing impact on company operations.
Geographical separation and international frontiers became less important as the
Internet expanded and crossed traditional trade borders.
1. Horizontal Mergers
- this kind of merger takes place between entities engaged in competing
businesses which are at the same stage of the industrial process
- A horizontal merger takes a company a step closer towards monopoly by
eliminating a competitor and establishing a stronger presence in the market.
- The most efficient horizontal merger brings profits from every aspect of the
value chain.
Example - Merger between HP and Compaq. It made eliminating competition
more accessible for HP. As a result of the merger, a new hope for better
innovation has been created, and the company has been aiming to adapt to the
new demands of the market and changing times.
Advantages
1. Increased Size and Reduced Competition - The most compelling reason is to eliminate emerging
competitors from the market by increasing the company's size. By merging two companies, they also
add the consumer base, which amounts to more customers. This leads to a larger market share which
can easily outshine all other companies.
2. Increased Power and Growth - Horizontal mergers are an excellent way to access more resources
and products. Many leading companies make it their primary development strategy to merge
horizontally. Disney is an example. Horizontal mergers enable companies to create a place for
themselves in the current market.
3. To Leverage Economies of Scale - Economies of scale mean the cost advantage companies get when
increasing output. This advantage is due to the inverse relationship between cost per unit and
production quantity. So in a horizontal merger, companies have to buy in bulk to meet the demands of
the new large customer base. As a result, supply chain costs decrease, bringing more financial gains
for the companies.
4. Gaining Resources - along with the merger come expanded resources. For example, the merger
brings a pool of new talent. A successful merger seeks to use talent and ideas to generate more
productivity and profitability. In terms of workforce, such mergers can introduce a company to new
skill sets to achieve tremendous success.
5. Create a New Market - Companies can also establish their brand in new locations through a
horizontal merger, enabling access to newer markets. Companies can even venture into new products
Horizontal Merger Cases-
1. Disney+ & Hotstar - Disney+ is a streaming platform owned by Disney, and Hotstar is a
streaming platform owned by Star Network in India. Instead of entering India’s streaming
industry directly, Disney merged with Hotstar and rebranded it as Disney+ Hotstar. The
platform, launched in March 2020, gives Indian consumers access to Disney’s shows and
movies. To gain a bigger market share, Disney has removed much of its content from
rival platforms like Netflix after launching their streaming service.
2. Integration of Facebook, Whatsapp, Instagram & Messenger
- All of these were independent social media platforms started by different companies
and one after another.
- Over time, they integrated into a single, large social media company led by Mark
Zuckerberg, now known as Meta Platforms Inc.
- Each platform retains its independence despite the integration, and the individual
websites remain intact. However, users can interact freely across the platforms
operating on a single network.
- In part, the merger with WhatsApp intended to implement end-to-end encryption
technology to protect user privacy.
3. PepsiCo & Rockstar
- In March 2020, PepsiCo made headlines when it announced its plan to acquire Rockstar for $3.85
billion
- It wanted to expand its presence in the energy drink market and gain a competitive edge against
rivals such as Coca-Cola.
- This acquisition was a combination of horizontal and vertical mergers, as Rockstar is not only one of
PepsiCo’s distributors but also a famous energy drink brand.
- By acquiring Rockstar, PepsiCo aimed to strengthen its position in the market alongside its other
energy drink products, such as Mountain Dew. With Red Bull currently leading the energy drink
category, PepsiCo hopes to gain deeper penetration into the market.
4. Frito Lay & Uncle Chipps
- Amrit Agro Ltd. was a New Delhi-based company that owned and produced the “Uncle Chips” potato
chip brand, which dominated up to 70% of the Indian market until 1998.
- In 2000, Frito Lay, a competitor owned by Pepsi, acquired Uncle Chipps along with their existing
brand Ruffles Lay’s, which had already entered the Indian market.
- The merger allowed Frito Lay to expand its potato chip portfolio and penetrate into the Indian
market further.
- Despite the acquisition, Uncle Chipps has retained its name and popularity among Indian consumers.
However, it did not rebrand its brand to avoid losing its market share.
2. Vertical Mergers –
- refers to the combination of two entities at different stages of the industrial or production
process.
For example, the merger of a company engaged in construction business with a company
engaged in production of brick or steel would lead to vertical integration.
- Companies stand to gain on account of lower transaction costs and synchronization of
demand and supply.
- Moreover, vertical integration helps a company move towards greater independence and
self-sufficiency
- A vertical merger is a merger between two or more companies involved at different stages in
the supply chain process for a common good or service.
- vertical M&A mergers take place between companies that produce separate services or
products along a similar value chain.
- Vertical mergers often take place between a manufacturer and a supplier, typically, in an
attempt to increase efficiency and gain business.
- They are, in a sense, a strategic tool.
- The vertical merger is a way for each company to capitalize on efficiency in terms of business
Advantages of Vertical mergers -
• Financial Synergy: Vertical mergers help reduce financial constraints by using
funds to help the merging company expand, grow debit capacity, reduce costs,
and increase credit.
• Managerial Synergy: Vertical mergers help to eliminate any poor management
team members by replacing them with more efficient management.
• Operating Synergy: Vertical mergers help to create better administration and
operation supply chain by combining the successes of each company while
replacing any trouble areas
How Does a Company Benefit from a Vertical Merger?
- making companies more competitive and increasing their market power.
- allow organizations to lower prices because they now control the supply chain.
The ability to lower prices gives organizations a huge leg up over competitors.
- Independence from suppliers also provides the opportunity to offer higher-
quality products while eliminating the risks associated with relying on third-
party developers.
- Vertical mergers also benefit companies by increasing their knowledge of their
product and its marketability
- When markets and consumer preferences shift, organizations that have a
greater understanding of the product and its production will be able to better
evolve and more quickly innovate their offerings.
- When acquiring supply chains, organizations also often acquire their patents,
resources and developing technologies. This makes organizations incredibly
more competitive and increases their future viability and growth.
1. AT&T and Time Warner
- 2016 AT&T announced its merger with Time Warner in an $ 85 billion deal.
- Time Warner was a humungous media and entertainment company. It controlled hugely popular
brands such as HBO, CNN, TNT, and TBS.
- AT&T was the world’s largest communications company.
- It was indeed recognized as the largest provider of fixed telephone services and mobiles in the USA.
- Earlier, smartphone maker Apple had looked at Time Warner for the merger, but the deal did not
happen.
- Due to the huge distribution of both companies, the merger could reach a huge scale.
- AT&T could create a robust mobile entertainment business with the growing penetration of
mobile phones. It created a powerful entity with a combination of content and distribution.
- Consumers were shifting away from TV to consuming content on mobile devices.
- With AT&T owning content, too, it helped in differentiating its wireless services from its competitors.
- AT&T could bundle content and wireless services. It could also help in delivering targeted
advertisements as it had better information on consumer preferences by collecting viewership
data.
- Another advantage was that AT&T could provide cable services at a lower cost because
of economic efficiencies.
2. Ikea bought Romanian and Baltic forests
- In 2015, the Swedish furniture giant bought forests in the Baltic States, amounting to a
whopping 38,000 hectares. In addition, it bought the 83,000-acre forest in Romania.
- Wood is one of the most important components of Ikea’s products as it manufactures furniture.
- The merger helped it manage its own forest operations. It enabled the company to have
access to sustainably managed wood for the long term. It helped it gain better control of its
main raw material, wood.
- In addition, it helped Ikea to hedge against timber price fluctuations in the Baltic. Another
rationale for the decision was that it enabled it to diversify its assets, which helped it in the
long-term goal of achieving resource independence.
- The company’s goal was to increase its sales to $55 billion by 2020. This decision would help it
achieve this goal.
- One of the concerns with Ikea’s decision was its environmental impact and some
encroachment concerns. Before this decision, Ikea was banned from cutting trees in Russia for
a brief period.
- Hence, Ikea laid special emphasis on allaying these concerns by agreeing to manage wood
sustainably. It said that it would take extra care to protect the environment and ensure the
welfare of local communities.
3. Walt Disney and Pixar
- Walt Disney acquired Pixar Animation Studios for $7.4 billion in 2006.
- Pixar was an innovative animation studio and had talented people. Walt Disney was a mass media
and entertainment company.
- The merger turned out to be a successful and strategic one.
- Before the merger, Disney’s own animation films were failing.
- Disney’s CEO said that animation was a critical engine for driving growth across its businesses.
- Pixar designed a slew of successful movies after the merger.
- These movies turned out to be innovative, with ever-lasting characters that ended up delighting
the audience.
- The merger also helped Disney reduce its competition. If Pixar had ended up in someone else’s
hands, then it would be extremely negative for Disney.
- Disney had a more formal culture, while Pixar was more relaxed. Yet it did not come in the way of
the merger.
- Disney made certain promises to Pixar employees. A year after the merger, it was found that
Disney had kept each of its promises. After gaining trust, the merger went smoothly, and Pixar
became more open to following Disney’s way.
3. Congeneric Mergers –
- A congeneric merger is a type of merger where two companies are in the same or
related industries or markets but do not offer the same products.
- In a congeneric merger, the companies may share similar distribution channels,
providing synergies for the merger.
- The acquiring company and the target company may have overlapping technology or
production systems, making for easy integration of the two entities.
- This type of merger is often resorted to by entities who intend to increase their market
shares or expand their product lines.
Example: Merger between Thomas Cook India Limited and Sterling Holiday Resorts
(India) Limited is an example of a congeneric merger as both the companies were
involved in the tourism industry but their customer-bases and process chains were
unrelated
- Both of these companies will have something in common, be it the market, the
technology, or the process of production.
- By merging, these two companies will extend their line by making use of both their
1. Broadcom and Mobilink Telecom Inc.
- This congeneric merger took place in 2002, with Broadcom (designs, develops and supplies a
broad range of semiconductor and infrastructure software solutions) being the company that
acquired Mobilink Telecom(Supplier of chipsets and reference designs for mobile phones and
cellular modem cards).
- The name Broadcom was kept, allowing them to improve their current brand name with new
technology.
- The companies provided slightly different products, but since both had to do with the electronic
industry, they were able to combine technologies and competencies.
2. Citicorp and Travelers Group
- In 1998, the banking giant Citicorp acquired the Traveler’s Group, a company offering financial
services.
- Both companies were part of the financial industries but had a different product line. Their merger
into Citicorp Inc. allowed them to expand their reach into the market.
3. Exxon and Mobil
- In 1998, a merger between two companies from the oil industry also occurred – namely, Exxon
and Mobil
- The result of this was ExxonMobil, which eventually became one of the world’s largest companies.
4. Conglomerate Mergers –
- A conglomerate merger is a merger between two entities in unrelated industries.
- The principal reason for a conglomerate merger is utilization of financial resources,
enlargement of debt capacity, and increase in the value of outstanding shares by
increased leverage and earnings per share, and by lowering the average cost of
capital.
- A merger with an unrelated business also helps the company to foray into diverse
businesses without having to incur large start-up costs normally associated with a
new business
- conglomerate is a large company composed of smaller companies it has acquired over
time.
- a conglomerate merger is a merger that involves two firms from unrelated business
industries and activities.
- Conglomerates are less popular today, but were quite popular in the 1960s and 1970s.
- A Conglomerate merger is seen as a valuable move if the value of the two companies
combined is more than they are valued at separately; this is often expressed by the 2 +
1. Walt Disney Company & American Broadcasting Company merger
- In 1995, Disney purchased ABC, gaining entry into ABC’s national television realm, as
well as ESPN’s extensive sports coverage
- Since Disney already owned several cable networks at the time of the deal this
would be a mixed conglomerate merger because it did open up extensive new
distribution and content options for Disney.
2. eBay & PayPal merger
- in 2002, eBay bought PayPal, providing it with a streamlined payment process for its
goods.
- This merger combined the purveyor talents represented by eBay’s product platform
with PayPal’s simplified electronic payment processing platform that was already
popular with consumers.
- The two companies split in 2015 because of pressure from stockholders and the
rapidly changing business environments in both commerce and payments, but they
signed a five-year agreement that guaranteed reliable income to PayPal while it
successfully expanded its platform to other competing retailers and financial firms.
3. Honeywell & Elster merger - this 5.1 billion dollar conglomerate merger in 2016
was attractive to Honeywell due to the fact Elster would lead to product and
geographical growth. Elster has been associated with high-quality and innovative
gas measuring and regulating devices. Elster manufactures energy measuring
systems, ultrasonic, turbine, rotary and diaphragm meters as well as gas pressure
regulators for low, medium and high pressure
5. Cash Merger
- In a ‘cash merger’, also known as a ‘cash-out merger’, the shareholders of one
entity receive cash instead of shares in the merged entity.
- This is effectively an exit for the cashed-out shareholders.
- a cash merger has to do with the mode of payment tendered in a business
acquisition.
- The acquiring firm chooses to utilize cash as the means of purchasing the stock
of the acquired firm, rather than utilizing its own stocks to complete the
transaction.
- Typically, the acquiring firm will first purchase any shares held by the target
company, then seek to purchase any shares currently in the possession of
investors.
- One of the main benefits of a cash merger is that the new owner immediately gains all
the assets of the acquired business, without any need to convert stocks or use some
other process to prepare those assets for any desired use.
- By essentially buying the shares of the target company, the new owner is taking over
the interests of the former stockholders and becomes the sole stockholder in the
acquired company.
- The mechanics of a cash merger are somewhat different from other merger strategies.
- In a more common scenario, the acquiring company works with the targeted
company to acquire controlling interest by using its own stock to buy shares of that
target.
- With this approach, investors in the target company are not frozen out of the process
and continue to retain their interest in the acquired company.
- Assuming that the merger is considered a positive event in the marketplace, those
investors will likely see their returns increase as they are issued shares of stock for the
newly combined business.
- With a cash merger, the investors in the target company are bought out and no
longer have an interest in the company at all.
6. Triangular Merger –
- A triangular merger is often resorted to, for regulatory and tax reasons.
- As the name suggests, it is a tripartite arrangement in which the target merges
with a subsidiary of the acquirer.
- Based on which entity is the survivor after such merger, a triangular merger may
be
1. forward (when the target merges into the subsidiary and the subsidiary
survives), or
2. reverse (when the subsidiary merges into the target and the target survives)
- A triangular merger involves three business entities: a parent (the acquirer), its
subsidiary, and the entity to be acquired (the target).
- This merger type involves the creation of a wholly-owned subsidiary of the
acquiring company in order to facilitate a share exchange between the buyer
and the seller.
Types of triangular merger
1. Forward triangular merger –
- The goal and subsidiary combine in a forward triangular merger, with the
subsidiary remaining and the target vanishing.
- The goal becomes a wholly-owned subsidiary of the acquirer as a result of the
sale.
- The acquirer would not assume the liabilities of the target since the merger
was between the target and the subsidiary.
- If the acquirer had directly combined with the target, the acquirer would have
accrued the target’s liabilities by operation of law.
- The key reason for a forward triangular merger is to enable the acquiring party
to purchase the target without taking on the target’s liabilities.
2. Reverse triangular merger
- A reverse triangular merger (also known as a reverse subsidiary merger) is an acquisition
arrangement in which one corporation buys another using one of its subsidiaries.
- The target company survives a reverse triangular merger in which a merger division of
the acquiring company merges with and into the target company.
- The acquired business continues to operate as a separate corporation, albeit as a
wholly-owned subsidiary of the purchasing company, which is somewhat
counterintuitive.
- As a result, this arrangement achieves the same result as if the acquiring company
bought all of the acquired company’s stock.
- The forward triangular merger, in which the purchased business ceases to exist, is in
contrast to the reverse triangular merger.
- The subsidiary merges into the aim in a reverse triangular merger, with the target
remaining and the subsidiary vanishing.
- All of the target’s ownership rights are transferred to the acquirer, and the target
becomes a wholly-owned subsidiary of the acquirer.