The term “merger” finds substantial mention in the Companies Act,2013 (CA13) as well as 1956(CA56), the Income Tax Act, 1961(IT Act) and various regulations of Securities and Exchange Board of India(SEBI), none of them have clearly laid down an exhaustive and absolute definition of merger. However, the framework of merger laid down in these legislations connotes that merger is the blending of two or more companies into one.
It is an amalgamation where all properties and liabilities of transferor are merged with the properties and liabilities of the transferee company. In essence, it is a merger of assets and liabilities of two or more companies. The IT Act defines an amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company.
All assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company. The shareholders with at least nine-tenths in value of the shares in the amalgamating company (or companies) become shareholders of the amalgamated company. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:
Equity shares in the transferee company
Debentures in the transferee company
Cash
A mix of the above mode
An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling interest in the share capital, or all or considerably all of the assets and/or liabilities, of the target. A takeover may be friendly or hostile, and may be effected through agreements between the offer or and the majority shareholders, 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.
Acquisitions may be by way of acquisition of shares of the target, or acquisition of assets and liabilities of the target.