Subject: FINANCIAL MANAGEMENT Course Code: M. Com Lesson: 1 Author: Dr. Suresh Mittal Vetter: Dr. Sanjay Tiwari
FINANCIAL MANAGEMENT OF BUSINESS EXPANSION, COMBINATION AND ACQUISITION STRUCTURE
1.0 1.1 1.2 Objectives Introduction Mergers and acquisitions 1.2.1 Types of Mergers 1.2.2 Advantages of merger and acquisition 1.3 1.4 1.5 Legal procedure of merger and acquisition Financial evaluation of a merger/acquisition Financing techniques in merger/Acquisition 1.5.1 Financial problems after merger and acquisition 1.5.2 Capital structure after merger and consolidation 1.6 1.7 1.8 1.9 Regulations of mergers and takeovers in India SEBI Guidelines for Takeovers Summary Keywords
1.10 Self assessment questions 1.11 Suggested readings
After going through this lesson, the learners will be able to • Know the meaning and advantages of merger and acquisition.
• • •
Understand the financial evaluation of a merger and acquisition. Elaborate acquisition. Understand regulations and SEBI guidelines regarding merger and acquisition. the financing techniques of merger and
Wealth maximisation is the main objective of financial management and growth is essential for increasing the wealth of equity shareholders. The growth can be achieved through expanding its existing markets or entering in new markets. A company can expand/diversify its business internally or externally which can also be known as internal growth and external growth. Internal growth requires that the company increase its operating facilities i.e. marketing, human resources, manufacturing, research, IT etc. which requires huge amount of funds. Besides a huge amount of funds, internal growth also require time. Thus, lack of financial resources or time needed constrains a company’s space of growth. The company can avoid these two problems by acquiring production facilities as well as other resources from outside through mergers and acquisitions.
1.2 MERGERS AND ACQUISITIONS
Mergers and acquisitions are the most popular means of corporate restructuring or business combinations in comparison to amalgamation, takeovers, spin-offs, leverage buy-outs, buy-back of shares, capital reorganisation, sale of business units and assets etc. Corporate restructuring refers to the changes in ownership, business mix, assets mix and alliances with a motive to increase the value of shareholders. To achieve the objective of wealth maximisation, a company should
continuously evaluate its portfolio of business, capital mix, ownership and assets arrangements to find out opportunities for increasing the wealth of shareholders. There is a great deal of confusion and disagreement regarding the precise meaning of terms relating to the business combinations, i.e. mergers, acquisition, take-over, amalgamation and consolidation. Although the economic considerations in terms of motives and effect of business combinations are similar but the legal procedures involved are different. The mergers/amalgamations of corporates constitute a subject-matter of the Companies Act and the acquisition/takeover fall under the purview of the Security and Exchange Board of India (SEBI) and the stock exchange listing agreements. A merger/amalgamation refers to a combination of two or more companies into one company. One or more companies may merge with an existing company or they may merge to form a new company. Laws in India use the term amalgamation for merger for example, Section 2 (IA) of the Income Tax Act, 1961 defines amalgamation as the merger of one or more companies (called amalgamating company or companies) with another company (called amalgamated company) or the merger of two or more companies to form a new company in such a way that all assets and liabilities of the amalgamating company or companies become assets and liabilities of the amalgamated company and shareholders holding not less than nine-tenths in value of the shares in the...
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