ARPITA KALUBARME 84
CONTENTS
Introduction Benefits / Risks
Types of M&A
Legal Perspective Takeover defences Journal Study & Accounting Standards
BENEFITS Undervalued Target Revenue Synergies Cost Synergies Financial Synergies Diversification Market Share
Vertical
Hostile Takeover
Target has no desire to be acquired The hostile takeover takes place as per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations Defense Tactics used by target : Shareholder Rights Plan, Poison Pill, White Knight, Crown Jewels
TAKEOVER DEFENSES
White Knight
Friendly potential acquirer sought by a target threatened by an unwelcome suitor
Shark Repellent
Amendments to a company charter made to forestall takeover attempts.
Poison Pill
Measure taken by a target firm to avoid acquisition; for example, the right for existing shareholders to buy additional shares at an attractive price if a bidder acquires a large holding.
Target Organisation
One of the few processes which is Stakeholder cross functional in an organisation Public
Shareholder Board of directors Antitrust division Customer Employees Banks
Stakeholder
Public Shareholder Board of directors Antitrust division Customer Employees Banks
Closure - Financing
Value Creation
CONTINUED
Accounting Standard 14 of the Institute of Chartered Accountants of India relates to accounting for amalgamations The Accounting Standard distinguishes between two types of amalgamation- i) An amalgamation in the nature of merger & ii) An amalgamation in the nature of purchase/acquisition The accounting treatment of the amalgamation depends on the nature of the amalgamation In the case of a merger, the pooling of interests method is to be applied, and for an acquisition the purchase method is to be adopted
CONTINUED
Under the pooling of interests method, the assets and liabilities of the merging companies are aggregated and recorded by the transferee company at their existing carrying amounts except to the extent necessary to ensure uniformity of accounting policy Similarly, the reserves appearing in the balance sheet of the transferor company are carried into the balance sheet of the transferee company
The difference between the amount recorded as share capital issued consequent to the swap ratio and the amount of the share capital of the transferor company is adjusted in the reserves
CONTINUED
Under the purchase method, the assets and liabilities of the transferor company are incorporated into the books of the transferee company either at their existing carrying amounts or at their fair values on the date of amalgamation The excess of purchase consideration (whether consisting of shares, cash, or other assets) over the net book value of assets (i.e., minus liabilities) is treated as goodwill that has to be amortized on a systematic basis over a period not exceeding five years, unless a longer period can be justified as its useful life In case of a shortfall, the difference is adjusted as a capital reserve
Pooling of Interest
The transferee company records the assets, liabilities and reserves of the transferor company at the existing amount, after making the adjustments to wipe off the effect of divergent accounting policies, if any
Purchase Method
The transferee company is free to restate the assets and liabilities of the transferor company at their fair value instead of book value
The identity of the reserves of the transferor company is preserved and these appear in the same form in the books of the transferee company as well
The identity of the reserves other than statutory reserves like Development Rebate Reserve, Investment Allowance Reserve etc, is not preserved