Indian Law: The Merger Boost in India - Why and How It Works
Fri, 08/06/2010 - 08:05 — LIG Reporter
The relaxation of restrictions on Mergers and Acquisitions, after the liberalization of the Indian economy, in 1991, facilitated the M&A deals in India. Earlier, in 1970 and 1980, the companies in India struggled to finalize M&A deals.
The latest buzz in the Indian business scenario pertains to mergers. Some of the most talked about terms in corporate world today are takeovers, open offers and acquisitions. However, before mergers can be successfully executed, companies have to fulfill various legal and financial formalities, in consonance with Indian law.
Indian Law: Why the Merger Boost?
The relaxation of restrictions on Mergers and Acquisitions, after the liberalization of the Indian economy, in 1991, facilitated the M&A deals in India. Earlier, in 1970 and 1980, the companies in India struggled to finalize M&A deals. More and more Indian companies are opting for mergers for:
- Gaining operating synergies.
- Market expansion.
- Diversification.
- Growth and survival.
- Consolidation and optimization of production capacities.
- Tax saving purposes.
- Increased competition.
- Globalization.
- Highly challenging business environment.
- Reduced Risk.
Indian Law: Factors that Affect the Success of Mergers
Merger deals in India are governed by several Indian laws, such as foreign investment laws in India and SEBI’s rules and regulations. Further, mergers require a company to carry out prior negotiations with banks/financial institutes.
To avail the benefits from a merger deal, a company must know its capabilities and limitations. Also, it should understand the objectives of the other firm, which it intends to tie up with.
Various factors that decide the success of a merger deal are, such as:
- Nature of the business.
- Business prospects of the company.
- The industry prospects in which the company operates.
- Reputation and expertise of the management.
- Value associated with brand and goodwill.
- Marketing channels and network of the company.
- Level of technology used.
- Efficiency of the workers.
- Financial turnover.
- Legal implications and obligations.
- Government policy for the sector and in general.
- Current value of the company’s shares.
A successful merger deal is beneficial for:
- the companies involved
- shareholders
- creditors
- members
- stake holders and
- the general public
Some much talked about mergers that took place recently in consonance with Indian law are ICICI Bank's merger with Bank of Madurai and HDFC Bank's merger with Times Bank.
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