Mergers and acquisitions (M&A) involve the combination of two or more businesses to form a new entity. In a merger, two or more organizations combine, creating a new management and ownership structure that incorporates individuals from both companies. On the other hand, an acquisition occurs when one company acquires the business of another by purchasing a majority stake (usually 51% or more) in the target company. Mergers and acquisitions provide significant strategic advantages to organizations in today’s competitive global market. In countries like India, where competition is intense, M&A activities can significantly strengthen an organization. However, mergers and acquisitions in India are often challenging and time-consuming.
MERGER AND ITS TYPES
- HORIZONTAL MERGER
Horizontal mergers involve combining two companies that produce similar products or services. For example, Vodafone and Cell C merged, consolidating their telecommunications industry operations.
- VERTICAL MERGER
Vertical mergers occur when companies operating at different stages of the production process merge. For instance, Zee Entertainment and Dish TV merged, combining their operations in the media and entertainment industry.
- CONSGENERIC MERGER
Conglomerate mergers involve combining two companies operating in the same industry but serving different customer segments. An example is the merger between Thomas Cook and Sterling Holidays, which combined the forces of the travel and tourism sector.
LEGAL FRAMEWORK OF MERGERS AND ACQUISITIONS UNDER THE COMPANIES ACT 2013
The Companies Act 2013 provides a legal framework for mergers and acquisitions in India. Several sections of the act address different aspects of M&A:
- Sections 230-232 outline the provisions and framework for mergers and amalgamations. They provide guidelines for the demerger and amalgamation processes.
- Section 235: This section empowers the National Company Law Appellate Tribunal (NCLAT) to conduct investigations into the affairs of companies involved in mergers and acquisitions.
- Section 236: It requires the auditor of a company to submit a report to the NCLAT during the M&A process.
- Section 237: This section enables the central government to investigate the affairs of companies during mergers and acquisitions.
- Sections 240-242: These sections empower the NCLAT to convene meetings of shareholders and members to decide on the process of mergers and acquisitions.
LEGAL FRAMEWORK OF MERGERS AND ACQUISITIONS UNDER THE COMPETITION ACT 2002
The Competition Act 2002 also plays a crucial role in regulating mergers and acquisitions. The act covers M&A activities in the following sections:
- Section 5: This section deals with combinations, including mergers and acquisitions, and sets a threshold limit determined by the Competition Commission of India (CCI). Individuals involved in M&A activities need to verify the threshold limit set by the CCI.
- Section 6: The approval or rejection of mergers and acquisitions is based on conditions determined by the CCI. The CCI regulates M&A processes to ensure fair competition in the market.
AREAS OF CONFLICT IN THE MERGERS AND ACQUISITIONS PROCESS
The mergers and acquisitions process involves the intersection of the Competition Act 2002 and the Company Act 2013, leading to potential conflicts. Some areas of conflict include:
- Threshold limit: The threshold limit for M&A activities differs between the Competition Act and the Companies Act. The Competition Act considers the possession of certain assets, while the Company Act focuses on the size of the business.
- Jurisdictional issue: The interpretations of M&A activities under the Competition Act and the Companies Act may differ, creating confusion when organizations attempt to resolve disputes.
- The time frame for approval: There is a significant difference in the time frames specified by both acts. The Competition Act sets a minimum approval time of 210 days, which can be extended based on specific reasons. In contrast, the Companies Act does not provide a particular time limit for approval, adding to organisations’ confusion.
- Provision for minor shareholders: Although the Companies Act includes provisions to protect the interests of minor shareholders, the Competition Act does not explicitly address this aspect, resulting in conflicts between the two acts.
CONCLUSION
Mergers and acquisitions play a crucial role in business growth, particularly in the era of globalization. Although the M&A process can be time-consuming, organizations can navigate it smoothly by complying with the provisions and guidelines specified in the Competition Act and the Companies Act.
