Intoduction To The Project

1
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BY- AVISHEK LADDHA

ROLL-427
PREFACE
The research project is an integral part of the curriculum and its
purpose is to provide the practical exposure of business world in
changing scenario. In this way it helps the student in development of
practical skills and analytical thinking process. Thus it helps in
molding the student according to the requirement of the market.
CONTENTS
SL.NO.
CHAPTE
R
PARTICULARS
PAGE
NO.
INTRODUCTION TO THE
PROJECT.
1.1-SYNOPSIS
3
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000000000000000000000000000000000000000000000000000000000000000000000
0000000000001100006d11001000000064701100e46d110052516032647011005c6d11
0010000000cc6e11004870110024516032647011005c6d11002000000049642f315c6d
fff0000030000080000000800004300000001000000000000002c01000025000000552e
90010008020f0502020204030204ef0200a07b20004000000000000000009f000000000
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
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00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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1.2-MEANING AND CONCEPT
1.3-OBJECTIVES OF THE STUDY
1.4-RESEARCH METHODOLOGY
1.5-LITERATURE SURVEY
1.6-CHAPTERIZATION
BY- AVISHEK LADDHA

ROLL-427
8
9
1.7-LIMITATION
11
MERGER
AND 10
AMALGAMATIONS
(HISTORICAL
IDEA AND REFERENCE TO
THE IDEA)
2.1-HISTORY OF MERGERS AND 10 - 12
ACQUISITIONS(WAVES OF MERGER)
2.2-MEANING
13
12
13
2.3-VALUATION
RELATED
MERGERS AND ACQUISITIONS
2.4-FINANCING
MERGERS
ACQUISITIONS
14
15
TO 14 - 16
AND 16 & 17
17
2.5-PROCEDURE FOR MERGER AND 18 - 24

AMALGAMATION
2.6-DISTINCTION
BETWEEN 25
MERGERS AND AMALGAMATIONS
2.7-VARIETIES OF MERGER
26
18
2.8-SUMMARY OF CHAPTER-2
16
19
20
21
22
27
MERGER
AND
AMALGAMATIONS DEALS
(1990 TILL 2010)
3.1-TOP 10 M&A DEALS (1990- 28
1999)
3.2-TOP 10 M&A DEALS (2000- 29
2010)
3.3-TOP 10 M&A DEALS (A BRIEF 30 & 31
DESCRIPTION)
5
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23
MERGER
AND
AMALGAMATIONS
(A
CASE STUDY ON THE
PETROLEUM SECTOR)
24
4.1-RELIANCE INDUSTRIES LIMITED
33
25
4.2-RELIANCE PETROLEUM LIMITED
33
26
4.3 A BRIEF
MERGER
REVIEW
BY- AVISHEK LADDHA

ROLL-427
OF
THE 34 - 36
27
4.4-BENEFITS FROM THE MERGER
28
4.5-BUSINESS
NEWS
FINALIZATION OF THE MERGER
ON 42 & 43
29
4.6-Future of RPL shareholders
44 & 45
30
31
4.7-THE
IMPACT
4.8-SCENARIO
MERGER
32
4.9-SHAREHOLDING
BEFORE MERGER
33
4.10-TAX
BENEFITS
SHAREHOLDERS
34
4.11-QUESTIONARES
BENEFITS
35
4.12-SUMMARY
36
37
37 - 41
OF
RIL-RPL 46 & 47
AFTER
THE 48
AFTER
TO
ON
CONCLUSION
OF
STUDY
BIBLIOGRAPHY
AND 49 & 50
THE 51
TAX 52 & 53
54
THE
55 & 56
57
7
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CHAPTER - 1
INTODUCTION TO THE PROJECT
BY- AVISHEK LADDHA

ROLL-427
1.1- SYNOPSIS
THE RECENT BUZZWORD IN THE CORPORATE INDIA IS MERGER AND
AMALGAMATION AND THE WHOLE GAMBIT OF COMPANIES ARE GOING
IN FOR DOMESTIC AND GLOBAL ACUISITIONS.
WHAT NEEDS TO BE SEEN IN HOW WELL THE COMPANIES ARE REAPING
THE BENEFIT OVERALL.THIS RESEARCH HAS TRIED TO GIVE THE
DETAILS OF MERGER AND AMALGAMATION .FOR THE PURPOSE OF
ANALYZING I HAVE TAKEN UP THE CASE OF MERGER BETWEEN
RELIANCE INDUSTRIES LIMITED & RELIANCE PETROLEUM LIMITED.
In this project work an attempt has been made to show,
analyze and point out the implications about the mergers and acquisitions. A reference
has been made to the buy back announced by RELIANCE INDUSTRIES
LIMITED.
1.2-MEANING AND CONCEPT

The phrase M&A (abbreviated MERGERS AND AMALGAMATIONS) refers to the
aspect of corporate strategy, corporate finance and management dealing with the
buying, selling and combining of different companies that can aid, finance, or help a
growing company in a given industry grow rapidly without having to create another
9
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business entity.
A merger is a transaction that results in the transfer of ownership and control of a
corporation.
A transaction where two firms agree to integrate their operations because they have
resources and capabilities that together may create stronger competitive advantage.
The term merger refers to a combination of two or more companies into a single
company and this combination may be either through consolidation or absorption.
A consolidation is a combination of two or more companies into a third entirely new
company formed for the purpose. The new company absorbs the assets, and possibly
BY- AVISHEK LADDHA
ROLL-427
liabilities, of both original companies which ceases to exist. When two firms merge,
stocks of both are surrendered and new stocks in the name of new company are issued.
Generally, mergers take place between two companies of more or less the same size.
In case of absorption one company absorbs another company i.e. it purchases either the
assets or shares of that company. The merger by absorption is always friendly in nature
i.e. both the companies agree to the terms of absorption.
1.3-OBJECTIVES OF THE STUDY.

The main objective of the proposed study is to find out the level of impact on the
companies, investors, shareholders and other relevant factors on a merger and
acquisition.
Generally it is seen that mergers are done to improve financial performance and the
following motives are analyzed below.
Economy of scale: This refers to the fact that the combined company can often
reduce its fixed costs by removing duplicate departments or operations,
lowering the costs of the company relative to the same revenue stream, thus
increasing profit margins.
Economy of scope: This refers to the efficiencies primarily associated with

demand-side changes, such as increasing or decreasing the scope of marketing
and distribution, of different types of products.
Increased revenue or market share: This assumes that the buyer will be
absorbing a major competitor and thus increase its market power (by capturing
increased market share) to set prices.
Cross-selling: For example, a bank buying a stock broker could then sell its
banking products to the stock broker's customers, while the broker can sign up
the bank's customers for brokerage accounts. Or, a manufacturer can acquire
and sell complementary products.
11
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Synergy: For example, managerial economies such as the increased
opportunity of managerial specialization. Another example are purchasing
economies due to increased order size and associated bulk-buying discounts.
Taxation: A profitable company can buy a loss maker to use the target's loss as
their advantage by reducing their tax liability.
1.4-Research Methodology
BY- AVISHEK LADDHA
ROLL-427
The methodology adopted in conducting the proposed study are as follows.Nature of data Mainly secondary data by the help of published reports of various
departments and companies, internet information, a few books, business journals.
Reports of various other scholars published on this topic were of immense help for
collecting the various data.
Application of statistical data various trends have been depicted with the help of
various statistical data like bar charts, pie charts, tabular representation of data etc. to
give a better representation of the matter.
1.5-LITERATURE SURVEY
A brief summary of other relevant research on this topic done
KAMAL GHOSH RAY- strategy, valuation and integration- brief idea on

merger and amalgamation.
Merger and amalgamation-A.P.DASHResearch for classification of merger, details, valuation methods.
Merger and amalgamation-EDWIN L. MILLER-legal procedure for merger

and amalgamation.
WILLIAM J. CARNEY- Data About The Yearly Mergers And Acquisition
Ministry of Petroleum and Natural gas(Govt. of India),Annual Reports April

2010.
N.R. SRIDHARAM & P.H.ARVIND PANDIAN,GUIDE TO TAKEOVERS

AND MERGERS.-
1.6-CHAPTERIZATION
13
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000000000000000000000000000000000000000000000000000000000000000000000
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MERGERS AND AMALGAMATIONS

Chapter1This chapter basically deals with analysis and details about the basic idea about the
amalgamation and merger, a brief history of the merger and amalgamation, procedure
for merger and amalgamations.
Chapter-2
-The second chapter gives coverage to the mergers and amalgamations with respect to
Indian economy, year wise details of merger and acquisitions of the world.
BY- AVISHEK LADDHA
ROLL-427
Chapter-3
The third chapter deals with merger and amalgamations deals (India and world wide)
Chapter-4
This chapter reflects the case study on merge and amalgamations in the petroleum
sector.
1.7-LIMITATION OF THE STUDY

The present study has seen limitations that need to be taken into account when
considering the study and its contributions. In this research report there are certain
things which are needed to be explored and should be investigate at a big approach.
There was also some time constraints which also limited my research work.
In addition to winding up the limitation of the project it was very interesting to
investigate about the topic and the market analysis.
15
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BY- AVISHEK LADDHA

ROLL-427
CHAPTER - 2
2.1-History of Mergers and Acquisitions

Tracing back to history, merger and acquisitions have evolved in five stages and each
of these are discussed here. As seen from past experience mergers and acquisitions are
triggered by economic factors. The macroeconomic environment, which includes the
growth in GDP, interest rates and monetary policies play a key role in designing the
process of mergers or acquisitions between companies or organizations.
o First Wave Mergers
17
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20000a001c000000fb020600030000000000bc02000000000102022253797374656d00
00000000000000000000000000000000000000000000000000040000002d010100040
000002d010100030000000000
The first wave mergers commenced from 1897 to 1904. During this phase merger
occurred between companies, which enjoyed monopoly over their lines of production
like railroads, electricity etc. the first wave mergers that occurred during the aforesaid
time period were mostly horizontal mergers that took place between heavy
manufacturing industries.
End Of 1st Wave Merger

Majority of the mergers that were conceived during the 1st phase ended in failure since
they could not achieve the desired efficiency. The failure was fuelled by the slowdown
BY- AVISHEK LADDHA
ROLL-427
of the economy in 1903 followed by the stock market crash of 1904. The legal
framework was not supportive either. The Supreme Court passed the mandate that the
anticompetitive mergers could be halted using the Sherman Act.
o Second Wave Mergers

The second wave mergers that took place from 1916 to 1929 focused on the mergers
between oligopolies, rather than monopolies as in the previous phase. The economic
boom that followed the post world war I gave rise to these mergers. Technological
developments like the development of railroads and transportation by motor vehicles
provided the necessary infrastructure for such mergers or acquisitions to take place.
The government policy encouraged firms to work in unison. This policy was
implemented
in
the
1920s.
The 2nd wave mergers that took place were mainly horizontal or conglomerate in
nature. Te industries that went for merger during this phase were producers of primary
metals, food products, petroleum products, transportation equipments and chemicals.
The investments banks played a pivotal role in facilitating the mergers and
acquisitions.
End of 2nd Wave Mergers

The 2nd wave mergers ended with the stock market crash in 1929 and the great
depression. The tax relief that was provided inspired mergers in the 1940s.
o Third Wave Mergers

The mergers that took place during this period (1965-69) were mainly conglomerate
mergers. Mergers were inspired by high stock prices, interest rates and strict
enforcement of antitrust laws. The bidder firms in the 3rd wave merger were smaller
than the Target Firm. Mergers were financed from equities; the investment banks no
longer played an important role.
End Of The 3rd Wave Merger

The 3rd wave merger ended with the plan of the Attorney General to split
conglomerates in 1968. It was also due to the poor performance of the
conglomerates.Some mergers in the 1970s have set precedence. The most prominent
ones were the INCO-ESB merger; United Technologies and OTIS Elevator Merger are
the merger between Colt Industries and Garlock Industries.
19
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000000000004400022430061006c00690062007200690000000000000000000000000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o Fourth Wave Merger

The 4th wave merger that started from 1981 and ended by 1989 was characterized by
acquisition targets that wren much larger in size as compared to the 3rd wave mergers.
Mergers took place between the oil and gas industries, pharmaceutical industries,
banking and airline industries. Foreign takeovers became common with most of them
being hostile takeovers. The 4th Wave mergers ended with anti takeover laws,
Financial Institutions Reform and the Gulf War.
o Fifth Wave Merger

The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom
BY- AVISHEK LADDHA
ROLL-427
and deregulation. The 5th Wave Merger took place mainly in the banking and
telecommunications industries. They were mostly equity financed rather than debt
financed. The mergers were driven long term rather than short term profit motives. The
5th Wave Merger ended with the burst in the stock market bubble.
Hence we may conclude that the evolution of mergers and acquisitions has been long
drawn. Many economic factors have contributed its development. There are several
other factors that have impeded their growth. As long as economic units of production
exist mergers and acquisitions would continue for an ever-expanding economy.
2.2-MEANING OF THE PHRASE MERGER

AND AMALGAMATION.
The phrase M&A (abbreviated MERGERS AND AMALGAMATIONS) refers to the
aspect of corporate strategy, corporate finance and management dealing with the
buying, selling and combining of different companies that can aid, finance, or help a
growing company in a given industry grow rapidly without having to create another
business entity.
A merger is a transaction that results in the transfer of ownership and control of a
corporation. Merger
A transaction where two firms agree to integrate their operations because they have
resources and capabilities that together may create stronger competitive advantage.
The term merger refers to a combination of two or more companies into a single
company and this combination may be either through consolidation or absorption.
A consolidation is a combination of two or more companies into a third entirely new
company formed for the purpose. The new company absorbs the assets, and possibly
liabilities, of both original companies which ceases to exist. When two firms merge,
stocks of both are surrendered and new stocks in the name of new company are issued.
Generally, mergers take place between two companies of more or less the same size.
In case of absorption one company absorbs another company i.e. it purchases either the
assets or shares of that company. The merger by absorption is always friendly in nature
i.e. both the companies agree to the terms of absorption.
2.3-Valuation
Acquisitions
Related
to
Mergers
and
21
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000000000000000000000000000000000000000000000000000000000000000000000
0000000000001100006d11001000000064701100e46d110052516032647011005c6d11
0010000000cc6e11004870110024516032647011005c6d11002000000049642f315c6d
fff0000030000080000000800004300000001000000000000002c01000025000000552e
90010008020f0502020204030204ef0200a07b20004000000000000000009f000000000
00000430061006c0069006200720000000000430065006e00740075007200790020004
7006f00906d11009c3827310d00000001000000cc6d1100cc6d1100e87825310d00000
0f46d11001c05e5006476000800000000250000000c00000001000000250000000c000
00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
88870741d1450741000000002c000000010000004c0000000400000000000000000000
00a9000000a900000050000000200000001b00000046000000280000001c0000004744
04744494303000000250000000c0000000e000080250000000c0000000e0000800e000
000140000000000000010000000140000000400000003010800050000000b02000000
00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
00000000440002243616c696272690000000000000000000000000000000000000000
0000000000040000002d010000040000002d010000040000002d01000004000000020
10100050000000902000000020d000000320a1000000001000400000000003d003d00
20000a001c000000fb020600030000000000bc02000000000102022253797374656d00
00000000000000000000000000000000000000000000000000040000002d010100040
000002d010100030000000000
The methods of valuation related to mergers and acquisitions can be broadly
categorized into three types, namely market based method, income based method, as
well as asset based method. All these methods carry a significant degree of importance
in the context of mergers and acquisitions. There are numerous elements, which
ascertain whether a particular firm should be acquired or not.
The financial steadiness of the firm, which is to be taken over is quite important to find
out. In addition, the financial track record over the last few years and trends
demonstrated in the macroeconomic ratio and indices require to be analyzed. Among
the methods of valuation related to mergers and acquisitions, the market based method
might be regarded as more appropriate, nevertheless, all the valuation methods are
crucial, taking into account the condition that is prevalent at the time when a merger or
BY- AVISHEK LADDHA
ROLL-427
acquisition is going to take place.
o Methods of Valuation
Mergers and Acquisitions
Related
to
The methods of valuation associated with mergers and acquisitions can be broadly
classified into the following types:
1) Market Based Method

In valuation of mergers and acquisitions with the help of market based method, the
different attributes of the firm which is going to be acquired are compared with the
similar types of attributes of other firms in the market. These firms (not the firm in
question) normally have a market value that has been set up earlier. Furthermore, some
other factors are to be taken into consideration before the comparison of the different
attributes is done. First of all, which elements need comparison are to be distinguished
and secondly, which are the firms that are going to act as comparables. Public sector
corporations involved in the same type of industry (of the target firm) can be chosen as
comparables. Nevertheless, if the target firm is not registered with a stock exchange or
is relatively small in its size than the public sector corporations, comparing it with the
public sector corporations may not be useful. In these circumstances, public and
private databases are there and these are basically commercial databases.
The other features that require to be compared are net earnings, gross revenue, and
book value of assets. As soon as all the information have been gathered, a broad-based
comparison is performed for obtaining the value of the target firm.
The market based method can be further categorized into the following types:
Market multiple (or price-earnings ratio) of comparable firms for firms that are
not listed
Market capitalization of listed firms
2) Income Based Method

The income based method of valuation associated with mergers and
acquisitions takes into account the net present value. The net present value of
earnings that is going to be received in the future is taken into consideration
through the implementation of a mathematical formula.
The income based method can be further classified into the following
23
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c0000d8000000170100000000000000000000000000005c4b030068430400160000000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types:
Cost to create technique
Free cash flow/discounted cash flow method
Capitalized earnings technique
3) Asset Based Method

This method of valuation related to mergers and acquisitions is applied while
the target firm is running at a loss. In this kind of a situation, the valuation of
the assets of the firm at loss is estimated. Besides this procedure, the income
BY- AVISHEK LADDHA
ROLL-427
based method and market based method can also be applied. Valuation
received with the help of these procedures may render small values.
Nevertheless, there is a probability that these methods would produce the true
condition of the assets of the target firm.
The asset based method can be further categorized into the following
forms:
Valuation of Intangible Assets
Economic Book Value or Net Adjusted Asset Value
Liquidation Value
2.4-FINANCING
ACQUISITIONS
MERGER
AND
Mergers are generally differentiated from acquisitions partly by the way in which they
are financed and partly by the relative size of the companies. Various methods of
financing an M&A deal exist:
Cash
Payment by cash. Such transactions are usually termed acquisitions rather than
mergers because the shareholders of the target company are removed from the picture
and the target comes under the (indirect) control of the bidder's shareholders.
Stock
Payment in the acquiring company's stock, issued to the shareholders of the acquired
company at a given ratio proportional to the valuation of the latter.
Which method of financing to choose ?

There are some elements to think about when choosing the form of payment. When
submitting an offer, the acquiring firm should consider other potential bidders and
think strategically. The form of payment might be decisive for the seller. With pure
cash deals, there is no doubt on the real value of the bid (without considering an
eventual earnout). The contingency of the share payment is indeed removed. Thus, a
cash offer preempts competitors better than securities. Taxes are a second element to
consider and should be evaluated with the counsel of competent tax and accounting
25
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c0000d8000000170100000000000000000000000000005c4b030068430400160000000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advisers. Third, with a share deal the buyers capital structure might be affected and
the control of the New co modified. If the issuance of shares is necessary, shareholders
of the acquiring company might prevent such capital increase at the general meeting of
shareholders. The risk is removed with a cash transaction. Then, the balance sheet of
the buyer will be modified and the decision maker should take into account the effects
on the reported financial results. For example, in a pure cash deal (financed from the
companys current account), liquidity ratios might decrease. On the other hand, in a
pure stock for stock transaction (financed from the issuance of new shares), the
company might show lower profitability ratios (e.g. ROA). However, economic
dilution must prevail towards accounting dilution when making the choice. The form
of payment and financing options are tightly linked. If the buyer pays cash, there are
three main financing options:
BY- AVISHEK LADDHA
ROLL-427
- Cash on hand: it consumes financial slack (excess cash or unused debt capacity) and
may decrease debt rating. There are no major transaction costs.
- Issue of debt: it consumes financial slack, may decrease debt rating and increase cost
of debt. Transaction costs include underwriting or closing costs of 1% to 3% of the
face value.
- Issue of stock: it increases financial slack, may improve debt rating and reduce cost
of debt. Transaction costs include fees for preparation of a proxy statement, an
extraordinary shareholder meeting and registration.
- Shares in treasury: it increases financial slack (if they dont have to be repurchased
on the market), may improve debt rating and reduce cost of debt. Transaction costs
include brokerage fees if shares are repurchased in the market otherwise there are no
major costs.
In general, stock will create financial flexibility. Transaction costs must also be
considered but tend to have a greater impact on the payment decision for larger
transactions. Finally, paying cash or with shares is a way to signal value to the other
party, e.g.: buyers tend to offer stock when they believe their shares are overvalued
and cash when undervalued.
2.5-PROCEDURE FOR
AMALGAMATION.
MERGER
AND
Top managements commitments towards merger and amalgamation

Top managements commitments towards merger and amalgamation. Top
management defines the organisations goal and outlines the objectives. The
organisations goal for business expansion could be accomplished, interalia through
business combinations as similatinga target corporate which can remove the present
deficiencies in the organization and can contribute in the required direction to
accomplish the goal of business expansion through enhanced commercial activity i.e.
supply of inputs and market for output product diversification, adding up new products
and improved technological process, providing new distribution channels and market
segments, making available technical personnel and experienced skilled manpower,
research and development establishments etc .Depending upon the specific need and
cost advantage with reference to creating a new set up or acquiring a well-established
set-up firm.
Search for a merger partner

The top management may use their own contacts with competitors in the same line of
economic activity or in the other diversified field which could be identified as better
27
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000000000000000000000000000000000000000000000000000000000000000000000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0000000000040000002d010000040000002d010000040000002d01000004000000020
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merger partners or may use the contacts of merchant bankers, financial consultants and
other agencies in locating suitable merger partners. A number of corporate candidates
may be short listed and identified. Such identification should be based on the detailed
information of the merger partners collected from published and private sources. Such
information should reveal the following aspects viz:
1) Organisational history of business and promoters and capital
structure.
2) Organisational goals
3) Product, market and competitors
4) Organisational setup and management pattern
5) Assets profile: Movable and immovable assets, land and building
6) Manpower skilled, unskilled, technical personnels and detailed particulars of
BY- AVISHEK LADDHA
ROLL-427
management employees.
Steps for merger and amalgamation :Once the merger partner has been identified and terms of merger are settled the
procedure summarized in Appendix III can be followed. An explanation to the said
steps is given below.
a - Scheme of AmalgamationThe scheme of amalgamation should be prepared by the companies, which have
arrived at a consensus
to merge. There is no specific form prescribed for scheme of amalgamation but
scheme should generally contain the following information:
1. Particulars about transferee and transferor companies
2. Appointed date
3. Main terms of transfer of assets from transferor to transferee with power to execute
on behalf or for transferee the deed or documents being given to transferee.
4. Main terms of transfer liabilities from transferor to transferee covering any
conditions attached to loans/debentures/ bonds/other liabilities from bank /financial
institution/ trustees and listing conditions attached thereto.
5. Effective date when the scheme will come into effect
6. Conditions as to carrying on the business activities by transferor between
appointed date and effective date.
7. Description of happenings and consequences of the scheme coming into effect on
effective date.
8. Share capital of transferor company specifying authorized capital, issued capital
and subscribed and paid up capital
9. Share capital of transferee company covering above heads.
10 Description of proposed are exchange ratio, any conditions attached thereto, any
fractional share certificates to be issued, transferee companys responsibility to obtain
consent of concerned authorities for issue and allotment of shares and listing.
11. Surrender of shares by shareholder of transferor company for exchange into new
share certificates.
12 Conditions about payment of dividend, ranking of equity shares, pro rata dividend
declaration and distribution.
13. Status of employees of the transferor companies from effective date and the status
29
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000000000000000000000000000000000000000000000000000000000000000000000
0000000000001100006d11001000000064701100e46d110052516032647011005c6d11
0010000000cc6e11004870110024516032647011005c6d11002000000049642f315c6d
fff0000030000080000000800004300000001000000000000002c01000025000000552e
90010008020f0502020204030204ef0200a07b20004000000000000000009f000000000
00000430061006c0069006200720000000000430065006e00740075007200790020004
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0f46d11001c05e5006476000800000000250000000c00000001000000250000000c000
00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
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00a9000000a900000050000000200000001b00000046000000280000001c0000004744
04744494303000000250000000c0000000e000080250000000c0000000e0000800e000
000140000000000000010000000140000000400000003010800050000000b02000000
00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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of the provident fund, gratuity fund, super annuity fund or any special scheme or funds
created or existing for the benefit of the employees.
14. Treatment on effective date of any debit balance of transferor company balance
sheet.
15.Miscellaneous provisions covering income-tax dues, contingencies and other
accounting entries deserving attention or treatment.
16.Commitment of transferor and transferee companies towards making
applications/petitions under section 391 and 394 and other applicable provisions of the
con Companies Act, 1956 to their respective High Courts.
17. Enhancement of borrowing limits of the transferee company upon the scheme
coming into effect.
BY- AVISHEK LADDHA
ROLL-427
18. Transferor and transferee companies give assent to change in the scheme by the
court or other authorities under the law and exercising the powers on behalf of the
companies by their respective Boards.
19. Description of powers of delegate of transferee to give effect to the scheme.
20. Qualification attached to the scheme, which require approval of different agencies,
etc.
21. Description of revocation/cancellation of the scheme in the absence of approvals
qualified in clause 20 above not granted by concerned authorities.
22. Statement to bear costs etc. in connection with the scheme by the transferee
company.
B - Approval of Board of Directors for the scheme
Respective Board of Directors for transferor and transferee companies are required to
approve the scheme of amalgamation.
C - Approval of the scheme by specialised financial
institutions/ banks/trustees for debenture holders .
The Board of Directors should in fact approve the scheme only after it has been
cleared by the financial institutions/banks, which have granted loans to these
companies or the debenture trustees to avoid any major change in the meeting of
creditors to be convened at the instance of the Company Courts under section 391 of
the Companies Act, 1956. Approval of Reserve Bank of India is also needed where the
scheme of amalgamation contemplates issue of share/payment of cash to non-resident
Indians or foreign national under the provisions of Foreign Exchange Management.
(Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
In particular, regulation 7 of the above regulations provide for compliance of certain
conditions in the case of scheme of merger or amalgamation as approved by the court
DIntimation
to
Stock
Exchange
about
proposed
amalgamation.
Listing agreements entered into between company and stock. exchange require the
company to communicate price-sensitive information to the stock exchange
immediately and simultaneously when released to press and other electronic media on
conclusion of Board meeting according approval to the scheme.
E - Application to Court for directions.
The next step is to make an application under section 39(1) to the High Court having
jurisdiction over the Registered Office of the company, and the transferee company
should make separate applications to the High Court. The application shall be made by
a Judges summons in Form No. 33 supported by an affidavit in Form No. 34 (see rule
82 of the Companies (Court) rules, 1959). The following documents should be
submitted with the Judges summons:
(a) A true copy of the Companys Memorandum and Articles.
31
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0f46d11001c05e5006476000800000000250000000c00000001000000250000000c000
00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
88870741d1450741000000002c000000010000004c0000000400000000000000000000
00a9000000a900000050000000200000001b00000046000000280000001c0000004744
04744494303000000250000000c0000000e000080250000000c0000000e0000800e000
000140000000000000010000000140000000400000003010800050000000b02000000
00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
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0000000000040000002d010000040000002d010000040000002d01000004000000020
10100050000000902000000020d000000320a1000000001000400000000003d003d00
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(b) A true copy of the Companys latest audited balance sheet.
(c) A copy of the Board resolution, which authorises the Director to make the
application to the High Court.
F - High Court directions for members meeting.

Upon the hearing of the summons, the High Court shall give directions fixing the date,
time and venue and quorum for the members meeting and appoint an Advocate
Chairman to preside over the meeting and submit a report to the Court. Similar
directions are issued by the court for calling the meeting of creditors in case such a
request has been made in the application.
BY- AVISHEK LADDHA
ROLL-427
G - Confirmation about service of the notice.

Ensure that at least one week before the date of the meeting, the Chairman appointed
for the meeting files an Affidavit to the Court about the service of notices to the
shareholders that the directions regarding the issue of notices and advertisement have
been duly complied with.
H - Holding the shareholders general meeting and passing
the resolutions.
The general meeting should be held on the appointed date. Rule 77 of the Companies
(Court) Rules prescribes that the decisions of the meeting held pursuant to the court
order should be ascertained only by taking a poll. The amalgamation scheme should be
approved by the members, by a majority in number of members present in person or
on proxy and voting on the
resolution and this majority must represent at least ths in value of the shares held by
the members who vote in the poll.
I - Filing of resolutions of general meeting with Registrar of
Companies.
Once the shareholders general meeting approves the amalgamation scheme by a
majority in number of members holding not less than 3/4 in value of the equity shares,
the scheme is binding on all the members of the company. A copy of the resolution
passed by the shareholders approving the scheme of amalgamation should be filed
with the Registrar of Companies in Form No. 23 appended to the Companies (Central
Governments) General Rules and Forms, 1956 within 30 days from the date of
passing the resolution.
J- Submission of report of the chairman of the general
meeting to Court.
The chairman of the general meeting of the shareholders is required to submit to the
Court within seven days from the date of the meeting a report in Form No. 39,
Companies (Court) Rules, 1959 setting out therein the number of persons who attend
either personally or by proxy, and the percentage of shareholders who voted in favour
of the scheme as well as the resolution passed by the meeting.
K - Submission of Joint petition to court for sanctioning the
scheme.
Within seven days from the date on which the Chairman has submitted his report about
the result of the meeting to the Court, both the companies should make a joint petition
to the High Court for approving the scheme of amalgamation. This petition is to be
made in Form No. 40 of Companies (Court) Rules. The Court will fix a date of hearing
of the petition. The notice of the hearing should be advertised in the same papers in
33
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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which the notice of the meeting was advertised or in such other newspapers as the
Court may direct, not less than 10 days before the date fixed for the hearing (Rule 80
of Companies (Court) Rules].
L- Issue of notice to Regional Director, Company Law Board
under section 394 A.
On receipt of the petition for amalgamation under section 391 of Companies Act, 1956
the Court will give notice of the petition to the Regional Director, Company Law
Board and will take into consideration the representations, if any, made by him.
M- Hearing of petition and confirmation of scheme
Having taken up the petition by the Court for hearing it will hear the objections first
BY- AVISHEK LADDHA
ROLL-427
and if there is no objection to the amalgamation scheme from Regional Director or

from any other person who is entitled to oppose the scheme, the Court may pass an
order approving the scheme of amalgamation in; Form No. 41 or Form No. 42 of
Companies (Court) Rules. The court may also pass order directing that all the property,
rights and powers of the transferor company specified in the schedules annexed to the
order be transferred without further act or deed to the transferee
company and that all the liabilities and duties of the transferor company be transferred
without further act or deed.
N - Filing of Court order with ROC by both the companies.
Both the transferor and transferee companies should obtain the Courts order
sanctioning the scheme of amalgamation and file the same with ROC with their
respective jurisdiction as required vide section 394(3) of the Companies Act,
1956 within 30 days after the date of the Courts order in Form No. 21 prescribed
under the (Central Governments) General Rules and Forms, 1956. The amalgamation
will be given effect to from the date on which the High Courts order is filed with the
Registrar.
O - Transfer of the assets and liabilities.
Section 394(2) vests power in the High Court to order for the transfer of any property
or liabilities from transferor company to transferee company. In pursuance of and by
virtue of such order such properties and liabilities of the transferor shall automatically
stand transferred to transferee company without any further act or deed from the date
the Courts order is filed with ROC.
P - Allotment of shares to shareholders of transferor
company.
Pursuant to the sanctioned scheme of amalgamation, the shareholders of the transferor
company are entitled to get shares in the transferee
company in the exchange ratio provided under the said scheme. There are three
different situations in which allotment could be given effect:
1. Where transferor company is not a listed company, the formalities prescribed under
listing agreement do not exist and the allotment could take place without setting the
record date or giving any advance notice to shareholders except asking them to
surrender their old share certificates for exchange by the new ones.
2. The second situation will emerge different where transferor company is a listed
company. In this case, the stock exchange is to be intimated of the record date by
giving at least 42 days notice or such notice as provided in the listing agreement.
3. The third situation is where allotment to Non-Resident Indians is involved and
permission of Reserve Bank of India is necessary.
The allotment will take place only on receipt of RBI permission.
In this connection refer to regulations 7, 9 and 10B of Foreign Exchange Management
35
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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(Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000
as and where applicable. THEME
Having made the allotment, the transferee company is required to file with ROC with
return of allotment in Form No. 2 appended to the Companies (Central Governments)
General Rules and Forms within 30 days from the date of allotment in terms of section
75 of the Act. Transferee company shall having issued the new share certificates
in lieu of and in exchange of old ones, surrendered by transferors shareholders should
make necessary entries in the register of members and index of members for the shares
so allotted in terms of sections 150 and 151 respectively of the Companies Act, 1956.
Q - Listing of the shares at stock exchange.
After the amalgamation is effected, the company which takes over the assets and
liabilities of the transferor company should apply to the Stock Exchanges where its
BY- AVISHEK LADDHA
ROLL-427
securities are listed, for listing the new shares allotted to the shareholders of the
transferor company.
R - Court order to be annexed to memorandum of transferee
company.
It is the mandatory requirement vide section 391(4) of the Companies Act, 1956 that
after the certified copy of the Courts order sanctioning the scheme of amalgamation is
filed with Registrar, it should be annexed to every copy of the Memorandum issued by
the transferee company. Failure to comply with requirement renders the company and
its officers liable to punishment.
S - Preservation of books and papers of amalgamated Co.
Section 396A of the Act requires that the books and papers of the amalgamated
company should be preserved and not be disposed of without prior permission of the
Central Government.
T - The Post merger secretarial obligations.
There are various formalities to be complied with after amalgamation
of the companies is given effect to and allotment of shares to the shareholders of the
transferor company is over. These formalities include filing of returns with Registrar
of Companies, transfer of investments of transferor company in; the name of the
transferee, intimating banks and financial institutions, creditors and debtors about the
transfer of the transferor companys assets and liabilities in the name of the transferee
company, etc.
U - Withdrawal of the Scheme not permissible.
Once the scheme for merger has been approved by requisite majority of shareholders
and creditors, the scheme cannot be withdrawn by subsequent meeting of shareholders
by passing Resolution for withdrawal of the petition submitted to the court under
section 391 for sanctioning the scheme.
V - Cancellation of the scheme and order of winding-up.
It was held by the Supreme Court m n J.K (Bombay) (P) Ltd. Vs. New Kaiser-I-Hind
that the effect of winding up order is that except for certain preferential payments
provided in the Act, the property of the company is applied in satisfaction of its
liabilities pari passu. Pari passu distribution is to be made in satisfaction of its
liabilities as they exist at the commencement of the winding-up. So long as the scheme
is in operation and is bind on the company and its creditors, the rights and obligations
of those on whom it is binding are undoubtedly governed by its provisions. But once
the scheme is cancelled under section 392(2) on the ground that it cannot be
satisfactorily worked and a winding-up order passed such an order is deemed to be for
all purposes to be one made under section 433. It is not because as if the scheme has
been sanctioned under section 391 that a winding-up order under section 392 (2)
37
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cannot be made. The Specialised formalities to cover up amalgamation .
The steps for merger or amalgamation discussed above are not the only considerations
effecting merger but in addition to the above and in relation thereto a number of
special formalities are also complied with which have been covered in detail in
specific chapters like share valuation and exchange ratio, accounting aspects of
funding of reorganization plans, etc.
2.6-Distinction
Acquisitions
between
Mergers
BY- AVISHEK LADDHA

ROLL-427
and
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target company
ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be
traded.
In the pure sense of the term, a merger happens when two firms, often of about the
same size, agree to go forward as a single new company rather than remain separately
owned and operated. This kind of action is more precisely referred to as a "merger of
equals." Both companies' stocks are surrendered and new company stock is issued in
its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two
firms merged, and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired
firm to proclaim that the action is a merger of equals, even if it's technically an
acquisition. Being bought out often carries negative connotations, therefore, by
describing the deal as a merger, deal makers and top managers try to make the
takeover
more
palatable.
A purchase deal will also be called a merger when both CEOs agree that joining
together is in the best interest of both of their companies. But when the deal is
unfriendly - that is, when the target company does not want to be purchased - it is
always
regarded
as
an
acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether
the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.
2.7-Varieties of Mergers
From the perspective of business structures, there is a whole host of different mergers.
Here are a few types, distinguished by the relationship between the two companies that
are merging:
Horizontal merger - Two companies that are in direct competition and

share the same product lines and markets.
39
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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Vertical merger - A customer and company or a supplier and company.
Think of a cone supplier merging with an ice cream maker.
Market-extension merger - Two companies that sell the same products in

different markets.
Product-extension merger - Two companies selling different but related

products in the same market.
Conglomeration - Two companies that have no common business areas.

There are two types of mergers that are distinguished by how the merger is
financed. Each has certain implications for the companies involved and for
BY- AVISHEK LADDHA
ROLL-427
investors:
o
Purchase Mergers - As the name suggests, this kind of merger occurs

when one company purchases another. The purchase is made with cash
or through the issue of some kind of debt instrument; the sale is taxable.
Acquiring companies often prefer this type of merger because it can
provide them with a tax benefit. Acquired assets can be written-up to
the actual purchase price, and the difference between the book value
and the purchase price of the assets can depreciate annually, reducing
taxes payable by the acquiring company. We will discuss this further in
part four of this tutorial.
Consolidation Mergers - With this merger, a brand new company is

formed and both companies are bought and combined under the new
entity. The tax terms are the same as those of a purchase merger.
2.8 - A BRIEF SUMMARY ON MERGER

A merger can happen when two companies decide to combine into one entity or when
one company buys another. An acquisition always involves the purchase of one
company by another.
The functions of synergy allow for the enhanced cost efficiency of a new entity
made from two smaller ones - synergy is the logic behind mergers and
acquisitions.
Acquiring companies use various methods to value their targets. Some of these
methods are based on comparative ratios - such as the P/E and P/S ratios replacement cost or discounted cash flow analysis.
A MERGERS AND AMALGAMATIONS deal can be executed by means of a
cash transaction, stock-for-stock transaction or a combination of both. A
transaction struck with stock is not taxable.
Break up or de-merger strategies can provide companies with opportunities to
raise additional equity funds, unlock hidden shareholder value and sharpen
management focus. De-mergers can occur by means of divestitures, carve-outs
41
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
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000140000000000000010000000140000000400000003010800050000000b02000000
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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spin offs or tracking stocks.
Mergers can fail for many reasons including a lack of management foresight,
the inability to overcome practical challenges and loss of revenue momentum
from a neglect of day-to-day operations.
BY- AVISHEK LADDHA

ROLL-427
CHAPTER - 3
3.1-Top
10
MERGERS
AMALGAMATIONS DEALS
AND
worldwide by value from 1990 to 1999:

Rank Year
Purchaser
Purchased
Transaction value (in mil. USD)
1999 Vodafone Air touch PLC Mannesmann
183,000
1999 Pfizer
Warner-Lambert
90,000
1998 Exxon
Mobil
77,200
1998 Citicorp
Travelers Group
73,000
1999 SBC Communications
Ameritech Corporation
63,000
1999 Vodafone Group
Air Touch Communications 60,000
1998 Bell Atlantic
GTE
53,360
1998 BP
Amoco
53,000
43
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
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00000000000000000000000000000000000000000000000000040000002d010100040
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9
1999 Qwest Communications
US WEST
48,000
10
1997 World com
MCI Communications
42,000
BY- AVISHEK LADDHA

ROLL-427
3.2-Top
10
MERGERS
AMALGAMATIONS deals
AND
worldwide by value from 2000 to 2010
Rank Year
Purchaser
America
(AOL)
Online
Inc.
Purchased
Transaction value (in mil.

USD)
Time Warner
164,747
Smith Kline Beecham Plc.
75,961
2000
2000 Glaxo Well come Plc.
2004
2006 AT&T Inc.
BellSouth Corporation
2001 Comcast Corporation
AT&T Broadband & Internet 72,041

Svcs
2009 Pfizer Inc.
Wyeth
68,000
2002 Pfizer Inc.
Pharmacia Corporation
59,515
2004 JP Morgan Chase & Co Bank One Corp
10
2009 Techno first Inc.
Royal Dutch Petroleum

Shell Transport & Trading Co.
Co.
74,559
72,671
58,761
Gold spark IT Solution PVT N/A

LTD, Inc
45
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c0000d8000000170100000000000000000000000000005c4b030068430400160000000
c000000180000000a0000001000000000000000000000000900000010000000a900000
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000000000004400022430061006c00690062007200690000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000000
0000000000001100006d11001000000064701100e46d110052516032647011005c6d11
0010000000cc6e11004870110024516032647011005c6d11002000000049642f315c6d
fff0000030000080000000800004300000001000000000000002c01000025000000552e
90010008020f0502020204030204ef0200a07b20004000000000000000009f000000000
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7006f00906d11009c3827310d00000001000000cc6d1100cc6d1100e87825310d00000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0000000000040000002d010000040000002d010000040000002d01000004000000020
10100050000000902000000020d000000320a1000000001000400000000003d003d00
20000a001c000000fb020600030000000000bc02000000000102022253797374656d00
00000000000000000000000000000000000000000000000000040000002d010100040
000002d010100030000000000
BY- AVISHEK LADDHA

ROLL-427
3.3-A BRIEF DESCRIPTION

1) Tata Chemicals buys British salt
Tata Chemicals bought British Salt; a UK based white salt producing company for
about US $ 13 billion. The acquisition gives Tata access to very strong brine supplies
and also access to British Salts facilities as it produces about 800,000 tons of pure
white salt every year
2)Reliance Power and Reliance Natural Resources merger

This deal was valued at US $11 billion and turned out to be one of the biggest deals of
the year. It eased out the path for Reliance power to get natural gas for its power
projects
3)Airtels acquisition of Zain in Africa

Airtel acquired Zain at about US $ 10.7 billion to become the third biggest telecom
major in the world. Since Zain is one of the biggest players in Africa covering over 15
countries, Airtels acquisition gave it the opportunity to establish its base in one of the
most important markets in the coming decade.
4)Abbotts acquisition of Piramal healthcare solutions

Piramal healthcare solutions at US $ 3.72 billion which was 9 times its sales. Though
the valuation of this deal made Piramals take this move, Abbott benefited greatly by
moving to leadership position in the Indian market
47
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
88870741d1450741000000002c000000010000004c0000000400000000000000000000
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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20000a001c000000fb020600030000000000bc02000000000102022253797374656d00
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000002d010100030000000000
5)GTL Infrastructure acquisition of Aircel towers

This acquisition was worth about US $ 1.8 billion and brought GTL Infrastructure to
the third position in terms of number of mobile towers 33000. The money generated
gave Aircel the funds for expansion throughout the country and also for rolling out its
3G services
6)ICICI Bank buys Bank of Rajasthan

This merger between the two for a price of Rs 3000 cr would help ICICI improve its
market share in northern as well as western India
BY- AVISHEK LADDHA
ROLL-427
7)JSW and Ispat Ki Kahani

Jindal Steel Works acquired 41% stake at Rs. 2,157 cr in Ispat Industries to make it the
largest steel producer in the country. This move would also help Ispat return to
profitability with time
8)Reckitt Benckiser goes shopping

Reckitt acquired Paras Pharma at a price of US $ 726 million to basically strengthen its
healthcare business in the country. This was Reckitts move to establish itself as a
strong consumer healthcare player in the fast growing Indian market
9)Mahindra goes international

Mahindra acquired a 70% controlling stake in troubled South Korea auto major S-sang
Yong at US $ 463 million. Along with the edge it would give Mahindra in terms of the
R & D capabilities, this deal would also help them utilise the 98 country strong dealer
network of S-sang Yong
10)Fortis Healthcare acquisitions

Fortis Healthcare, the unlisted company owned by Malvinder and Shivinder Singh
looks set to make it two in two in terms of acquisitions for around Rs.882 cr. last
month,
CHAPTER-4
CASE STUDY ON MERGER AND
AMALGAMATION
49
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
88870741d1450741000000002c000000010000004c0000000400000000000000000000
00a9000000a900000050000000200000001b00000046000000280000001c0000004744
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BY- AVISHEK LADDHA

ROLL-427
RELIANCE INDUSTRIES LIMITED AND

RELIANCE PETROLEUM LIMITED
4.1-RELIANCE INDUSTRIES LIMITED

Reliance Industries Limited (RIL) is India's largest private sector company on all
major
financial parameters with
a turnover of Rs. 1,39,269
crore (US$ 34.7 billion),
cash profit of
Rs.25,205crore (US$ 6.3
billion), net profit
(excluding exceptional
income) of
Rs.15,261crore (US$ 3.8
billion) and net worth of
Rs. 81,449 crore (US$
20.3 billion) as of March
31, 2008..
RIL is the first private
sector company from India
to feature in the Fortune
Global 500 list of' World's
51
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
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00a9000000a900000050000000200000001b00000046000000280000001c0000004744
04744494303000000250000000c0000000e000080250000000c0000000e0000800e000
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00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
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0000000000040000002d010000040000002d010000040000002d01000004000000020
10100050000000902000000020d000000320a1000000001000400000000003d003d00
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Largest Corporations' and ranks 103rd amongst the world's Top 200 companies
in terms of profits. RIL is amongst the 30 fastest climbers ranked by Fortune.
RIL features in the Forbes Global list of the world's 400 best big companies and
in the FT Global 500 list of the world's largest companies. RIL ranks amongst the
'Worlds 25 Most Innovative Companies' as per a list compiled by the US financial
publication-Business Week in collaboration with the Boston Consulting Group.
Reliance Petroleum
Limited
BY- AVISHEK LADDHA
ROLL-427
(RPL) is a subsidiary of Reliance Industries Limited. RPL is

Setting up a green field petroleum refinery and polypropylene plant in a Special
Economic Zone at Jamnagar in Gujarat. With an annual crude processing capacity of
580,000 barrels per stream day (BPSD), RPL will be the sixth largest refinery in the
world.
4.3 A BRIEF REVIEW OF THE MERGER

Creates one-fourth of the worlds total complex refining capacity .Becomes the
53
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000000000000000000000000000000000000000000000000000000000000000000000
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0010000000cc6e11004870110024516032647011005c6d11002000000049642f315c6d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world's single-largest refining hub.Becomes the world's 17th largest refining
company . Becomes the worlds fifth largest polypropylene producer. Derives
synergies from combined operations crude sourcing, product placement, supply chain
optimization. Acquires flexibility in operations planning, higher utilisation of
combined cash flows.
RIL has set April 1, 2008 for the date of the amalgamation. The takeover is subject to
approvals by the high courts at Mumbai and Ahmedabad.
Analysts were not surprised by the merger as RIL has played the merger game quite
often in the past. All of RILs subsidiaries involved in refining or petrochemicals in the
past have eventually been merged with RIL. RILs existing refinery was earlier in a
separate company also named Reliance Petroleum. This company, which started
BY- AVISHEK LADDHA
ROLL-427
operations in FY01, was merged with RIL with effect from March 2002.
Also, RIL acquired petrochemical company IPCL in FY03 as part of the governments
disinvestment programme. IPCL was merged with RIL in FY07. Several other
petrochemical companies either promoted by RIL or acquired by it have eventually
been merged with RIL.
The latest merger, which was announced after early morning board meetings today,
will create a behemoth with a total refining capacity of 1.24 million barrels of crude a
day, which is a quarter of the world's total complex refining capacity.
The merger would help source crude oil for the integrated refinery complex and aid
marketing of fuels such as gasoline and diesel globally at a time when demand was
slumping
RIL said the merger would result in RIL operating two of the worlds largest, most
complex refineries; emerging as the worlds fifth largest producer of polypropylene;
and becoming the worlds largest producer of ultra clean fuels at a single location.
The 1.24 million barrels per day refining capacity made at Jamnagar in Gujarat is the
single largest refining hub in the world, beating Paraguana refinery in Venezuela.
The merger, however, did not help the stock price. Shares of RPL dropped as much as
8.3 per cent, but recovered to close 2.3 per cent lower at Rs 74.60. Parent RIL fell as
much as 4.2 per cent before closing 3.84 per cent lower at Rs 1,217.4 on the Bombay
Stock Exchange. The Sensitive Index dropped 3.7 per cent.
Analysts said the ratio was slightly worse than the market expected. But the
cancellation of treasury stock meant RILs earnings per share would go up. The stock
tumbled today more because of global concerns, they said.
Rating agency Moodys said the merger simplified the groups corporate structure,
giving RIL access to an additional 30 per cent of cash flow generation from RPL that it
did not currently have, for a small cash consideration.
RIL, which owns 70 per cent of RPL, will buy Chevron Corps 5 per cent stake in RPL
for Rs 1,350 crore as part of the merger. The US oil major is reselling the shares at the
same price it bought from RIL at the time of the public offering in April 2006.
RIL officials said the company would continue its commercial relations with Chevron
though both agreed to discontinue the equity participation. As per the agreement,
Chevron was supposed to sign crude supply and product off-take agreement with RIL.
But it did not happen as they wanted to exit from the investment in refining. RIL was
now well prepared to buy crude and supply products and hence could go ahead alone,
the officials said.
55
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RIL said the merger would unlock significant operational and financial synergies that
existed between RIL and RPL. Through this merger, RIL consolidated a complex
refinery with minimal residual project risk, while complementing RILs product range.
There would be further gains from reduced operating cost arising from synergies of
combined operations, RIL added.
The RPL refinery, which was commissioned on December 25, 2008, has so far earned
$300 million revenue through early product deliveries.
RILs 33 million tonne per annum (mtpa) refinery at Jamnagar together with RPL's
newly built 29 mtpa export oriented refinery would make it the largest refining
company in India. It would displace state-owned Indian Oil Corporation (IOC) with
50.7 mtpa refining capacity.
BY- AVISHEK LADDHA
ROLL-427
In the list of world's largest refining companies, RIL will become the 17th largest firm
after the merger. The list is led by Exxon Mobil with a massive 5.6 million barrels per
day (mbpd), followed by Shell with 4.6 mbpd and Sinopecs 3.8 mbpd refining
capacities.
4.4 BENEFITS FROM THE MERGER

The beneficiary of the merger would depend on the swap ratio. In mergers the swap
ratio is determined based on the intrinsic value of the respective companies, which is
in turn decided based on various parameters, ie. market value based swap ratio, book
value based swap ratio, etc.
As per the 27 February 2009 closing price of RIL and RPL, the swap ratio works out
to 1 share of RIL for every share 16.6 share of RPL.
However, on book value basis, the ratio works out to be adverse for the RPL
shareholders.
We believe given that RPL is yet to commence production from its new refinery the
book value based swap ratio would not be an ideal indicator for fixing a swap ratio.
The case also strengthens from the fact that RPLs IPO price was fixed at Rs60/share
much above the book value of Rs29/share of the company. Thus, a book value based
swap ratio does not serve any purpose in this case.
We believe swap ratio in the range of 16-17x will be Neutral for both companies.
Since RPLs listing, the hypothetical swap ratio between RIL and RPL has been in the
range of 21 - 10x, giving an average of 15.7x and median of 15.3x.
However, if the ratio is more than around 18x, it would be adverse for RPL
shareholders. While any swap ratio of more than 20x would be beneficial for RIL
shareholders
Benefits
Background: The proposed merger is in line with global industry trends, for achieving
scale, size, integration, and enhanced financial strength and flexibility to pursue future
growth opportunities, in an increasingly globally competitive environment.
The merger also takes into consideration factors such as:
57
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
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The continued progress in hydrocarbon sector reforms and deregulation
in India
The dismantling of the Administered Pricing Mechanism (APM) in the
refining and marketing industry
The government's decision to grant marketing rights for transportation
fuels to the private sector, including to RPL
The new growth opportunities of substantial scale arising from the
proposed privatisation of domestic public sector oil companies.
Financial Benefits
BY- AVISHEK LADDHA
ROLL-427
RPL has achieved several corporate records in the initial nearly two years of its
operations.
RPL is India's largest private sector company in terms of sales, and second only to RIL
in terms of profit, net worth and assets. RPL has reported cash profit of Rs. 1,877
crores (US$ 389 million) and net profit of Rs. 1,269 crores (US$ 263 million) for the 9
months period April-December 2001.
The proposed merger will thus directly result in:
accretion of over Rs. 1,300 crores (US$ 265 million) to RIL's net profits,
and
acquisition of facilities, which have been valued at over Rs. 21,000 crores
(US$ 4.3 billion) by leading international industry consultants, Chemsystems.
The merger will be significantly accretive for RIL's shareholders, as annualised EPS
will increase from Rs. 26.0 (US$ 0.5) to Rs. 28.8 (US$ 0.6) per share, based on
financial results as announced by RIL and RPL for the first 9 months of the financial
year 2001-02, as annualised.
RPL, on a stand alone basis, enjoys credit rating of AA+ from CRISIL. Its rating was
upgraded from BBB+ to AA+ within just about a year.
The RPL refinery has operated at 107% capacity utilisation rate during the financial
year ended March 31, 2002.In recognition of the benefits of the proposed merger, the
credit rating agencies, CRISIL and FITCH have reaffirmed outstanding AAA and P1+
credit ratings for RIL, and placed RPL's existing AA+ credit rating on rating watch,
with positive implications.
OPERATIONAL BENEFITS
: The merger will contribute to the following substantial benefits for RIL, thereby
enhancing shareholder value:
Scale
Integration
Global competitiveness
Operational synergies
Logistics advantages
Cost efficiencies
Productivity gains
Rationalisation of business processes
Optimisation of fiscal incentives
Enhanced financial strength and flexibility
Elimination of transfer pricing issues
Reduction of volatility in the earnings stream
59
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The merger of RPL with RIL will thus contribute to achievement of RIL's objectives
of attaining leadership in the industry peer group, not only in terms of the assets base,
revenues, production volumes and market share, but also in terms of maximisation of
total shareholder returns.
The merged company will have the ability to leverage its large asset base, diverse
range of products and services, vast pool of intellectual capital and proprietary skill
sets and capabilities, and a demonstrated track record of timely and efficient project
execution for multi-billion dollar projects, to significantly enhance overall shareholder
value.
The merger will also result in increased financial strength and flexibility for RIL, and
enhance its ability to participate in future growth opportunities, particularly in the
BY- AVISHEK LADDHA
ROLL-427
context of its own initiatives in the E&P and Infocom sectors, and the government's
approach towards hydrocarbon sector reforms, deregulation of marketing of petroleum
products, and the privatisation of public sector enterprises.
The integration of the manufacturing and other facilities of RPL and RIL will also
contribute to enhanced global competitiveness for the merged entity, thereby
increasing its ability to compete with its peer group in domestic and international
markets.
The two companies also share common corporate values. These values include
protection of the environment, active support for the communities where they operate,
promoting diversity and
opportunity in the workforce and amongst business partners, and providing sustained
returns to shareholders.
RPL and RIL share common fundamental management philosophies. Both companies
pursue sustainable growth within a conservative financial framework. The merged
entity will adopt a dividend distribution policy in line with existing policies of RPL
and RIL.
.
4.5-BUSINESS NEWS ON FINALIZATION OF

THE MERGER
Chairman and Managing Director of RIL Mukesh Ambani said that the merger
followed the "enduring philosophy of creating shareholder value".
Ambani said that they will issue 6.92 crore shares to RPL shareholders following
merger.
RIL and RPL board met on Monday and finalised the merger.
The merge of Reliance's refinery subsidiary with itself makes the company one of the
world's largest refiners and the combined crude oil processing capacity will be 1.24
million barrels per day.
The merger will also lead to Reliance Industries acquiring the five-per cent stake that
US oil major Chevron holds in RPL.
61
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RIL holds a 70.38-per cent stake in RPL, while Chevron holds five per cent. The rest is
held by foreign funds, financial institutions and the public.
It is the second merger between RIL and RPL.
Earlier in 2002, RIL had merged RPL, which set up the 660,000 bpd refinery at
Jamnagar in 1999. The new refinery was commissioned in late-December in a Special
Economic Zone adjacent to the old unit.
RIL gets court approval for RPL merger
he Bombay high court has sanctioned the scheme of amalgamation of RPL with
BY- AVISHEK LADDHA
ROLL-427
Reliance Industries [ Get Quote ], Mukesh Ambani-led company said in a filing to the
Bombay Stock Exchange [ Images ].
The high court of Gujarat has also sanctioned the scheme, it added.
"The high court orders have been filed with the respective offices of the registrar of
companies and the scheme has become effective on September 11, 2009, with
appointed date being April 1, 2008," RIL said.
Consequently, 'RPL stands dissolved without winding-up,' the company added.
Shares of RIL were trading at Rs 2,144.05, up 0.14 per cent, whereas RPL was quoted
at Rs 132.20, up 0.76 per cent, in the afternoon trade on BSE.
APART FROM THE BENEFITS FROM THIS MERGER TO THE
SHAREHOLDRERS, A BRIEF APPROACH ON THE NEGATIVE TURN HAS
BEEN NARRATED BELOW.
SP Tulsian, of sptulsian.com doesnt see RIL-RPL merger news a reason to cheer for
shareholders of Reliance Industries. According to him, RIL shares could rise by about
Rs 50 or cross Rs 1,300.
However, he was quick to add that this step will disappoint shareholders of Reliance
Petroleum. "One can see the price correcting to about Rs 70 because ultimately
everything depends on the conversion ratio, which is likely to hover between 18:1 and
24:1.
It all depends on what stand Reliance Industries would take for extinguishment of their
stake of 70% that they hold in Reliance Petroleum. If they go for extinguishment then
it could be a better ratio of 18:1. If they go for non-extinguishment, then the ratio
could be 24:1.
4.6-Future of RPL shareholders

Tulsian gives an example of the state of RPL shareholders post merger:Book value of RIL shareholder as of March 31, 2009, which is likely to be the
effective date of the merger, would be 700, while that of RPL would be Rs 30.
How he arrived at book value: Reliance Industries has been in existence for the last 30
years. So there has been an accretion in the value of the fixed assets of the company,
while RPL being a new company, there has not been much accretion. The project cost
63
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fff0000030000080000000800004300000001000000000000002c01000025000000552e
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7006f00906d11009c3827310d00000001000000cc6d1100cc6d1100e87825310d00000
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
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000140000000000000010000000140000000400000003010800050000000b02000000
00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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of RPL of Rs 27,000 crore can be taken at about Rs 30,000-33,000 crore as of today.
Therefore, a shareholder of Reliance Industries will be shouting if the ratio is
anywhere more than 24 to 1 because that is the ratio working out, based on the book
value. If market value is the criteria for swap ratio, it works out to about 16-17.
Ratio would definitely be negative for RPL shareholders.

Tulsian said that RPL itself is entitled under Section 10AA, therefore RPLs profits
would be exempted for the first five years being an EOU (Export Oriented Unit). This
merger is not being mooted or moved with a view to have any tax advantage because
BY- AVISHEK LADDHA
ROLL-427
RPL as such is entitled, all its profits will be exempted for the first five years to the
extent of 100% of Section 10AA being a 100% EOU.
Benefits
Tulsian says, RPL has an advantage of the higher Nelson Complexity also. They have
Nelson Complexity of 14.7 against RIL which has 11.7, which will always be giving
the merged entity an extra gross refining margin to the extent of USD 2 per barrel. So
all these things definitely makes a synergy, may be in terms of increasing the capacity
and saving slight payments and overhead cost.
Tulsian is of the view that RIL-RPL merger can easily increase the debt equity ratio,
by 10 bps on the merged entity but this will definitely be EPS accretive for the merged
entity as well. He explains, "May be the retail investors will feel depressed or may be
nervous that their price will get corrected closer to anywhere between Rs 65 to Rs 70.
What should investors do?

Tulsian said the merger definitely strengthens the case for making investment in
Reliance Industries. He advises investors to get out of RPL. One can really play blind
and without taking a know of the merger ratio, one can get out from RPL even if one
gets the price of anywhere above Rs 70 and to move into Reliance Industries because
before management does that conversion for investor, it is better to have that voluntary
shifting from RPL to RIL on Monday itself.
4.7-THE IMPACT OF RIL-RPL MERGER
65
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BY- AVISHEK LADDHA

ROLL-427
Historically every company that Reliance Industries Ltd has floated has been folded
into the mother ship at some stage. This way, the promoters have always been able to
increase their stake in the mothership.
The merger ratio, therefore, is more likely to favour RIL than RPL. Again, speaking of
history, RIL has set the swap ratios for earlier mergers at a CAGR of 8-10% from IPO
price. RPLs IPO (in April 2006) was priced at Rs 60. The RPL share price on Friday
was Rs 76 (exactly at 8% CAGR). A 10% CAGR would mean a share price of Rs 80.
Given this, the swap should at best be around 18:1, said Kunal Bhakta, director, Foster
Capital Ventures.
THIN
ARBRITRAGE
FOR
PARTNERS
Basically, whenever a merger is announced and the swap ratio becomes public, the
shares of the company that will cease to exist typically trades at a discount to the
implied swap ratio. The arbitrage opportunity in the extinguishing companys share
depends on liquidity.
MERGER
BY
APRIL
END
The first step for RIL will be to seek legal sanction for the merger. The high court will
hear the application in a week at the earliest. The court is then expected to ask RIL to
get approval from shareholder. A notice for an extraordinary general meeting will have
to be sent 21 days before it is held as per Companies Act. So net-net, the merger could
be consummated legally by April-end, said analysts.
EARNINGS
&
REFINING
CYCLE
RPLs cash flows are seen helping RILs capital expenditure plans because RPL is
more efficiently structured in terms of cash flows, analysts said. However, while the
deal would bring much-needed liquidity in the short term, it also makes RIL less
attractive to those who do not want to invest in a cyclical, commoditised business.
67
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fff0000030000080000000800004300000001000000000000002c01000025000000552e
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7006f00906d11009c3827310d00000001000000cc6d1100cc6d1100e87825310d00000
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
0000000000002540000005400000000000000000000001a0000003700000001000000
88870741d1450741000000002c000000010000004c0000000400000000000000000000
00a9000000a900000050000000200000001b00000046000000280000001c0000004744
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000140000000000000010000000140000000400000003010800050000000b02000000
00050000000c023d003d00040000002e0118001c000000fb02efff00000000000090010
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0000000000040000002d010000040000002d010000040000002d01000004000000020
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RIL already earns two-thirds of its revenues from refining, an industry that is facing a
multi-year cyclical downturn. This merger would double RILs refining capacity,
thereby making its non-refining revenues negligible.
This will tie RILs fortunes more closely to the refining cycle, which is globally
entering a stage of depression. On the positive side, there will be a huge contribution to
RILs bottomline from sale of Krishna Godavari gas. The company, which pays only a
11% minimum alternate tax, can now use the depreciation from RPL plant to lower the
profit of the combined entity and save on tax.
SEZ
&
TAX
HOLIDAYS
The merger is unlikely to have any impact on the tax holidays enjoyed by RPL, since
they are bestowed upon the refining unit operating inside the special economic zone,
BY- AVISHEK LADDHA
ROLL-427
rather than on RPL as a company. The tax benefits are expected to continue without
any change. However, it will
have an indirect beneficial impact due to the transfer of depreciation of RPLs plants to
RILs profit & loss accounts.
4.8-SCENARIO AFTER THE MERGER

The table shows the top
remarkable position in it.
5 refineries globally. It can be seen that that ril has a

CDU CAPACITY NELSON INDEX
COMPANY
LOCATION
BP
TEXAS CITY 433
14.2
RIL SEZ
JAMNAGAR 580
14.0
RIL EOU
JAMNAGAR 660
11.3
CITGO
LAKE
CHARLES
320
11.2
EXXON MOBILL
BAYTON
428
10.9
4.9 SHAREHOLDING AFTER AND BEFORE

MERGER
69
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00001000000250000000c00000001000000120000000c00000001000000180000000c0
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00a9000000a900000050000000200000001b00000046000000280000001c0000004744
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BY- AVISHEK LADDHA

ROLL-427
-Combined entity will have higher financial strength and

flexibility.
The deal is expected to enhance the position of RIL as an integrated global

energy major. Markets ascribe higher valuation for integrated energy
companies vis-a-vis standalone refiners due to better competitive position and
reduced earnings volatility.
This merger of RPL is expected to transform RIL to be among worlds 50 most

profitable companies; top ten non-state owned refining company globally; top
15 independent upstream companies; and five largest producers of poly
propylene in the world.
RIL will have enhanced weight ages in domestic indices, it will also gain
significantly from higher financial strength and flexibility. The merger is likely
to be earnings accretive for RIL from the first year itself.
It will have operational synergies from combined business in areas such as

crude sourcing, product placement, process optimization and logistics, besides
consolidation of a world-class operating refinery asset.
The combined capacity of the two companies expected to be 1.24 million

barrels of oil a day. At present RIL produces 6.60 lakh barrels and RPL
produces 5.80 lakh barrels a day.
The merger would help the combined entity save on income tax and dividend
distribution tax.
It would also create a much bigger balance sheet that would help Reliance
Industries raise money for working capital and expansion.
The merger of Reliance Industries and Reliance Petroleum is also a move

towards integration of group businesses and will create huge market value of a
whopping Rs 2,33,000 cr. Shareholders and the market is excited over the
prospects of this merger so think of the buzz and the market value that would
be generated if the two brothers decide to bury their differences!
Reliance Industries Ltd. expects to increase the cost efficiency as it will bring
down the costs of Inter-company transfers & operational costs which will
further lead to improving the financial efficiency.
71
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We can expect the conversion of the holdings at around 1 share of Reliance
Industries for every 20 shares of Reliance Petroleum. As the operational costs
of RIL will decrease substantially, this merger will be a good news for
Reliance Industries share holders as the profits are tend to increase after the
decrease in operational costs.
4.10-TAX
BENEFITS
BY- AVISHEK LADDHA
ROLL-427
TO
THE
SHAREHOLDERS
The merger of Reliance Pertroleum (RPL) with Reliance Industries (RIL) is the latest
in a long string of amalgamations and mergers that have taken place over time in the
Reliance group.
As per the arrangement announced by RIL, RPL shareholders of RPL will get one
share of RIL for every 16 RPL shares held by them. Though the merger is effective
April 1, 2008, the record date, i.e. the actual date when the shares will be swapped,
hasnt been announced yet. When the announcement does come in, RPL shareholders
will own RIL shares in lieu of their RPL shares.
4.11-QUESTIONARES ON TAX BENEFITS

Would
such
a
share
Is capital gains tax payable?
swap
entail
any
tax
consequences?
What
about
cost
of
acquisition
and
period
of
holding?
This weeks article examines these and other related issues.
First and foremost, from the tax point of view, RPL will be the amalgamating
company, while RIL will be the amalgamated company.
As per the provisions of Sec. 47 (vii) read with Sec. 49(2), any transfer by a
shareholder in a scheme of amalgamation of shares held by him in the
amalgamating company shall not be regarded as transfer ifA. TRANSFER IS MADE IN CONSIDERATION OF ALLOTMENT TO HIM
OF SHARES IN THE AMALGAMATED COMPANY ;AND
B. AMALGAMATED COMPANY IS AN INDIAN COMPANY.
What this means is that any exchange of shares held in the amalgamating
company (RPL) will not be considered as a sale and consequently there will be no
capital gains/ loss as long as the transfer is made in consideration for being
allotted shares in the amalgamated company (RIL).
Moreover, the cost of shares of RPL will be considered as the cost of shares of the
new shares allotted of RIL.
Readers would know that in order for shares to qualify as long-term assets and
consequently as long-term capital gains upon sale, they have to be held for over
12 months.
Now, in this case, to ascertain whether the freshly allotted RIL shares are longterm or not, the period of holding of RPL shares would also be considered.
73
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000000000004400022430061006c00690062007200690000000000000000000000000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Indexation however, will start from the date of allotment of RIL shares.
Lets
understand
all
this
in
terms
of
an
example.
Lets say Vishal has acquired 400 shares in RPL on December 15, 2008 @Rs 90
per share. Therefore, his total cost is Rs 36,000 (Rs 90 X 400 shares). Now, on the
record date, his holding of 400 shares in RPL will be converted into 25 RIL
shares (400/ 16). His total cost remains the same, i.e. Rs 36,000, yielding a net cost
per RIL share of Rs 1,440 (Rs 36,000/ 25 RIL shares).
Lets say, going forward, Vishal sells his holding of 25 RIL shares on December
31, 2009 at Rs 1,600 per share. He would get Rs 40,000 on selling the shares. The
capital gain earned would be Rs 4,000 (Rs 40,000 less Rs 36,000). Also, though he
has technically held the RIL shares for less than 12 months (from record date
BY- AVISHEK LADDHA
ROLL-427
which will be on or after April 1, 2009 till December 31, 2009), since the period of
holding of the erstwhile RPL shares has to be aggregated, this capital gain would
be long-term in nature and hence free of tax.
In the above illustration, the example of a shareholder who holds RPL shares that
are an exact multiple of 16 has been used for ease of understanding,. But in real
life, this may not be so. What if one holds only 15 shares or perhaps 200 or even
300 in short a number that is not exactly divisible by 16 such that you get a
precise round figure of RIL shares.
Though it is not clear from the terms so far, in all probability RIL would
compensate
for
the
fractional
shareholding
in
cash.
In this regard, in the case of Gautam Sarabhai Trust, 173 ITR 216 the Gujarat
High Court held that if besides shares, the shareholders of the amalgamating
company are allotted something more in exchange like say bonds or cash, etc.,
then the swap will not get the benefit of exemption from capital gains.
However, experts are of the opinion that the above ruling is applicable only in
cases where the offer for shares plus cash / bonds is a part and parcel of the terms
of the merger itself and not where the cash comes into the picture only to account
for fractional ownership. For example, if the offer were one RIL share plus say
Rs. 50 in cash for every 16 shares of RPL, the swap would be considered as a
transfer and capital gains tax would apply. But since the offer is of one RIL share
only (and nothing else) for every 16 shares held and cash, if at all, comes into play
because fractional shares cannot be offered, the spirit of the law isnt revoked and
hence there would be no capital gain.
THUS the RIL-RPL merger will be completely tax neutral for all
shareholders of RPL.
4.12 - SUMMARY
Indias largest ever merger.
RPL shareholders to get 1 share of RIL for every 16 shares of RPL.
75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RILS holding in RPL to be cancelled. No fresh treasury stock created.
RIL to be among top 10 private sector refining company globally.
RIL to be among the worlds largest producer Of Ultra Clean Fuels.
Merger to unlock greater efficiency from scale and synergies.
Merger to be EPS accretive; AAA rating reaffirmed by CRISIL.
RIL to have 3.7 million shareholders.

BY- AVISHEK LADDHA
ROLL-427
CHAPTER - 5
CONCLUSIONOne size doesn't fit all. Many companies find that the best way to get ahead is
to expand ownership boundaries through mergers and acquisitions. For others,
separating the public ownership of a subsidiary or business segment offers more
advantages. At least in theory, mergers create synergies and economies of scale,
expanding operations and cutting costs. Investors can take comfort in the idea that a
merger
will
deliver
enhanced
market.
.
By contrast, de-merged companies often enjoy improved operating performance
thanks to redesigned management incentives. Additional capital can fund growth
organically or through acquisition.
77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M&A comes in all shapes and sizes, and investors need to consider the complex issues
involved in M&A. The most beneficial form of equity structure involves a
complete analysis of the costs and benefits associated with the deals
CONCLUSION OF THE PROPOSED STUDY.

Mergers and acquisitions become very popular over the last two decades. Thanks to
Globalization.,liberalization, technological changes etc. but sometimes the impact of
BY- AVISHEK LADDHA
ROLL-427
mergers from shareholders point of view have been highly disappointing. This is
because making the merger work successfully is not the only task to do but making the
people of both the organizations together.
Therefore, while making the merger deals, it is necessary not only to make analysis but
also analyse the cultural issues of both the organization for proper post acquisition
integration.
CONCLUSION ON THE CASE STUDY

It seems that the deal is a win-win situation for both companies, as RIL will have
improved cash flow, stronger balance sheet and lower cost of capital post merger. For
RPL shareholders, the merger is expected to reduce earnings volatility and allows them
to participate in RILs full energy value chain. Both the companies have lots of benefit
and synergy between each other. The merger will unlock significant operational and
financial synergies that exist between RIL and RPL. It creats a platform for valueenhansing growth and reinforces RILs position as an integrated global energy.
The merger will enhance value of shareholders of both companies. The merger is EPS
accretive for RIL. Through this merger, RIL consolidates a world-class, complex
refinery with minimal residual project risk, while complementing RILs product range.
There will be further gains from reduced operating costs arising from synergies of a
combined operation.
79
0100090000031602000002009601000000009601000026060f002203574d4643010000
0000000100a2c30000000001000000000300000000000000030000010000006c000000
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d4600000100000300001000000002000000000000000000000000000000f6090000e40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BY- AVISHEK LADDHA

ROLL-427
BIBLIOGRAPHY
1. Www.Google.Com
2. Www.Investopedia.Com
3. Www.Ril.Com
4. Www.Too Step.Com
5. H.R. Machiraju, Mergers Acquisitions And Takeovers, New Age
International (P) Limited, 2003, Page 169
6. J. Fred Weston & Samuel C. Weaver, Tata Mcgraw Hill Publishing
Company Limited, New Delhi, 2002, Page 3
7. David M. Schweiger, Merger And Integration, Mcgraw Hill, 2002,
Page8. Ch. Rajeshwer, Mergers & Acquisitions: New Perspective, Icfai Press,
India
9. S. Shiva Ramu, Corporate Growth Through Mergers And Acquisitions,
Response Books, New Delhi, 1998
10. John Hagedoorn And Jos Schakenraad, The Effect Of Strategic
Technology Alliances On Company Performance, Strategic Management
Journal, Vol. 15, 291-305(1994)
11. Sven Olof Zfridolfsson And Johan Stennek, Why Mergers Reduce
Profits And Raise Share Prices, February 10,2000.
81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12.
Patrick.A.Gaughan,Mergers
,Acquisitions&Corporate
nd
Restructuring,2 Edtn.(New York:John Whiley &Sons,1999)Pg-21-60
13. N.R.Sridharam &P.H. Arvind Pandian,Guide To Takeovers &Mergers
(Nagpur:Wadhan&Co.,1992)
BY- AVISHEK LADDHA

ROLL-427

Intoduction To The Project

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1

BY- AVISHEK LADDHA

1.2-MEANING AND CONCEPT

1.3-OBJECTIVES OF THE STUDY

BY- AVISHEK LADDHA

2.5-PROCEDURE FOR MERGER AND 18 - 24

4.1-RELIANCE INDUSTRIES LIMITED

4.2-RELIANCE PETROLEUM LIMITED

BY- AVISHEK LADDHA

4.4-BENEFITS FROM THE MERGER

4.6-Future of RPL shareholders

BY- AVISHEK LADDHA

1.2-MEANING AND CONCEPT

1.3-OBJECTIVES OF THE STUDY.

Economy of scope: This refers to the efficiencies primarily associated with

KAMAL GHOSH RAY- strategy, valuation and integration- brief idea on

Merger and amalgamation-A.P.DASHResearch for classification of merger, details, valuation methods.

Merger and amalgamation-EDWIN L. MILLER-legal procedure for merger

WILLIAM J. CARNEY- Data About The Yearly Mergers And Acquisition

Ministry of Petroleum and Natural gas(Govt. of India),Annual Reports April

N.R. SRIDHARAM & P.H.ARVIND PANDIAN,GUIDE TO TAKEOVERS

MERGERS AND AMALGAMATIONS

1.7-LIMITATION OF THE STUDY

BY- AVISHEK LADDHA

2.1-History of Mergers and Acquisitions

o First Wave Mergers

End Of 1st Wave Merger

o Second Wave Mergers

End of 2nd Wave Mergers

o Third Wave Mergers

End Of The 3rd Wave Merger

o Fourth Wave Merger

o Fifth Wave Merger

2.2-MEANING OF THE PHRASE MERGER

acquisition is going to take place.

1) Market Based Method

Market capitalization of listed firms

2) Income Based Method

Cost to create technique

Free cash flow/discounted cash flow method

Capitalized earnings technique

3) Asset Based Method

Valuation of Intangible Assets

Economic Book Value or Net Adjusted Asset Value

Which method of financing to choose ?

Top managements commitments towards merger and amalgamation

Search for a merger partner

F - High Court directions for members meeting.

G - Confirmation about service of the notice.

and if there is no objection to the amalgamation scheme from Regional Director or

BY- AVISHEK LADDHA

Horizontal merger - Two companies that are in direct competition and

Market-extension merger - Two companies that sell the same products in

Product-extension merger - Two companies selling different but related

Conglomeration - Two companies that have no common business areas.

Purchase Mergers - As the name suggests, this kind of merger occurs

Consolidation Mergers - With this merger, a brand new company is

2.8 - A BRIEF SUMMARY ON MERGER

BY- AVISHEK LADDHA

worldwide by value from 1990 to 1999:

Transaction value (in mil. USD)

1999 Vodafone Air touch PLC Mannesmann

1999 SBC Communications