What is Mergers, Acquisitions and Corporate Restructuring ?

WHAT IS MERGERS?

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Introduction to Mergers

The merger refers to combining two or more companies into one companioning two or more companies into one company. It can either be done by merging of one or more companies into the existing company or framing a new to the existing company or framing a new company by merging two or more existing company. The word 'amalgamation is used for the merger by the Income Tax Act,

The merger is done in the following two types:

·   Merger by absorption:- Combining two or more companies into the existing company are known as absorption. In this merger, one company loses its entity and goes into liquidation and all other companies remain the same. For example, there are two companies A Ltd. and B Ltd., company B Ltd. is merged in the assets and liabilities of company B Ltd will be acquired by company A Ltd. and company B Ltd. will be liquidated. For example, in India, there was a merger by absorption of Reliance Polypropylene Ltd. (RPPL) by Reliance Industries Ltd. (RIL) due to which RPPL was liquidated and the shareholders were given 20 shares of RIL for every 100 shares of RPPL presented with them.

·   Merger by consolidation:- The combination of two or more companies for forming one new company is known as consolidation. This is also called a triangular merger. Amalgamation is sometimes used in place of consolidation. In this merger, all the existing companies lose their identity and are liquidated for making the new company. All the assets and liabilities of the consolidating company are acquired by the new company or cooperation. The old assets are sold to the new company and the control and management are given to the new company. Like the two companies, A Ltd. and B Ltd. are merged to form a new company known as AB Ltd. or C Ltd. There is difference between merger through absorption and merger through consolidation. In absorption, one company acquire another company, no new company is made while in consolidation, both the companies are merged to make a new company. In consolidation, the companies are of the same size while in absorption the size of the companies is different. Usually, the small company is merged into a big company. Both absorption and consolidation are used correspondently while the ways and issues of both the forms of mergers are the same.

WHAT ARE ACQUISITIONS?

Introduction to Acquisitions

An acquisition is also known as a takeover. It is when one company buys another company. In other words, an acquisition is when the buyer company purchases the assets or shares of the seller by paying cash, the securities of the buyer and other assets of value to the seller. When there is stock purchase transaction then the shares of the seller are not going to be combined with the existing company of the buyer and may be kept separately as the new subsidiary or operating division while in the asset purchase transaction, the assets taken by the seller to the buyer becomes an extra asset for the company of buyer. It believes that the value of assets purchased will be more than the price paid over the time period. It will increase the value of the shareholder as a result of strategic or financial advantages of the transaction.

It is a friendly or hostile process. In friendly a takeover, the companies negotiate about the cooperation to be done by each other while in hostile the takeover is not informed to the target company and they are forced to go for a takeover. Thus, acquisition refers to when the large firm purchases small firm.

WHAT IS CORPORATE RESTRUCTURING?

Introduction to Corporate Restructuring

Corporate Restructuring means any modification in the ownership, business mix and alliances for increasing the iconic of the shareholders. The important characteristic of the business and investment is corporate restructuring.

It consists of proceedings related to expansion and contraction of operations of the firms and changes in its assets or finiretal or ownership structure. Restructuring means the important changes required in the strategy and policy offers its site with the assets liability composition, equity and debt proportion financing and the operations. Company the restructuring includes all the activities undertaken for making balanced organization, profitable and help the organization in attaining the objectives of the company in an effective way as compared to the previous way.

Corporate the restructuring includes the following:-

1) Ownership Restructuring: The company by the help of activities like merger and acquisitions, leveraged buy-outs, buyback of shares, spin-offs, joint ventures and strategic alliances try to change the company ownership structure.

2) Business Restructuring: The business restructuring refers to the reorganization of the business units or divisions like diversification into new businesses, outsourcing, disinvestment, brand acquisitions, etc.

3) Assets Restructuring: Asset restructuring refers to the acquisition or sale of assets and their ownership structure. For example, sale and leaseback of assets, debt securitization, receivable factoring, etc.