1. Introduction
Amalgamation is the method of joining up two or more company into a single company or organization. The process of amalgamation which is also known as merging of companies involves quite a lot of organizational systems, such as tasks, people and resources. The main characteristic of merging is enormous expansion of company strategy, company finance and management. Merging sometimes also happened to assist an emerging company in a specific industry to develop quickly without creating an additional business entity. [1]
In case of amalgamation there is two terms which is frequently used are merger and acquisition.[2] Well both of this term represents amalgamation or merging but they do have a little different meaning. Whenever a company takes over a different company and undoubtedly establishes itself like brand new proprietor[3], this type of purchase is known as acquisition. Acquisition can be either private or public, depends on whether the target company is or isn’t listed in public market. An acquisition could be friendly or hostile also.
Friendly or hostile acquisition depends on how the purchase of the target company is perceived and communicated to and also acknowledged by that company’s shareholders, employees and board of directors. “It is quite normal for M&A deal communications to take place in a so-called ‘confidentiality bubble’ whereby information flows are restricted due to confidentiality agreements” (Harwood, 2006)[4]. When friendly acquisition occurs, the companies work together by discussions. On the other hand when hostile acquisition happed the company which is targeted to takeover is unenthusiastic to be bought. Unfriendly or hostile acquisitions often become friendly towards the end, as the company which is taking over secures the approval of the matter from the board of the target company. This generally requires an enhancement in the conditions of the bid. Acquisition typically states the purchase of a minor company by the superior one. Occasionally, however, a minor company will get hold of management power of a bigger and well recognized company and able to uphold its name for the joint entity. This process is called reverse takeover.
A merger may occur whenever two companies are in agreement to go ahead as a solitary new company as oppose to stay behind individually owned and operated. This type of accomplishment is more specifically referred to as a “merger of equals“. The companies are mostly of about the equal size. “Both companies’ stocks are surrendered and new company stock is issued in its place.”
In real world real mergers of equals doesn’t occur very frequently. Generally, one company purchase another as an element of the deal’s terms, basically let the acquired company to announce that the act is a merger of equals, yet it is theoretically an acquisition. An acquisition agreement will also be called a merger when both CEOs are of the same opinion that amalgamation collectively is in the best significance of both the companies.
2. Factors behind amalgamation
The most general influence in support of mergers and acquisitions is the idea that “synergies” exist. Synergy helps the companies to work mutually which in return come up with greater value then what they might earn separately. These synergies possibly will the consequence from the company’s joint capability to develop economies of scale, get rid of repeated functions, split managerial knowledge, and increase the amounts of principal assets (Ravenscraft and Scherer 1987). Carlton and Granada hope to save £55 million annually by combining their operations. Unfortunately, research shows that the predicted efficiency gains often fail to materialize following a merger (Hughes 1989).[5]
‘Horizontal‘ mergers occur among companies working at the similar rank of production in the similar business, may possibly also be encouraged by the aspiration for higher market supremacy. Theoretically, the administration that has the authority for instance Britain’s Competition Commission ought to block any tie-up that might create a cartel capable of abusing its authority. Most of the time decisions made by these administrations are contentious and very much politicized. “In the case of Carlton and Granada, the government imposed strict safeguards to prevent the combined firms from unfairly raising the price of TV advertising.” several authors have argued about the condition that mergers are not likely to generate monopolies in the nonexistence of such parameter, as there is no proof that mergers in the precedent have usually lead to an extend in the focus of market supremacy (George 1989)[6], even though there may possibly be an exceptions for particular industries (Ravenscraft and Scherer 1987).
Sometimes, companies may receive tax recompense from a merger or acquisition. On the other hand, Auerbauch and Reishus (1988) fulfilled that “tax considerations probably do not play a significant role in prompting companies to merge.”[7]
Corporations may practice mergers and acquisitions as division of planned approach of diversification, helping the company to develop fresh markets and broaden its risks. AOL’s merger with media giant Time Warner, for instance, saved it from being affected quite so disastrously as many of AOL’s Internet competitors by the ‘dot com crash’ (Henry 2002).[8]
A corporation may search for an acquisition for the reason that it believes its objective to be undervalued, and therefore a “bargain” – a superior venture able of generating an increased return in favor of the mother company’s shareholders. Frequently, such acquisitions are as well forced by the “empire-building desire” of the mother company’s managers (Ravenscraft and Scherer 1987).
3. Legal considerations
When a solitary company decides to get hold of a different company, a chain of consultation will take place among the two companies. The acquiring company will enclose a strong negotiating approach and arrangement in position. If the target company believes an amalgamation is achievable, the two companies will go through into a “Letter of Intent.”[9]
The Letter of Intent basically provides the outlines of the conditions for potential discussions and commits the target company to give an important thought to the merger. Letter of Intent also provides or indicates green lights for the acquirer company. Various key stages of the process if it is perused are the legal rudiments of the deal which should be gone all the way through in organize.
I. The Due Diligence Stage
This is one of the most vital points in establishing the appropriateness of a merger or acquisition. It involves detection of all the liabilities which are linked with the matter and confirmation that any claims prepared by the vendors are acceptable. The accountability of being conducted correctly is the directors who will be responsible to their shareholders. The types of effects which thus practice ought to show is the evidence of the target businesses main assets, particulars of any awaiting legal cases concerning them, any contractual obligations that company has and what shock a change of possession should have on those agreements. This period can turn into very practical so it is prudent to employ a solicitor to carry out the work.
II. The Deal Stage
This stage works mainly on support the provisions of the impending deal. This is probable to comprise assurances from the vendor connecting to aspects of the company. For clarification of the specifics it is essential to get an on paper declaration confirming that which is then recognized as a ‘warranty‘. Company may also ask for an ‘indemnity’ which is a promise from the vendor to refund shareholders in full in assured situation, for example wherever very significant information has been left unrevealed. Yet again it is a good thought to look for the recommendation of a skilled professional to make sure this key stage is finished adequately.
III. Cross-Border Mergers
For mergers within UK and abroad companies The Companies (Cross-Border Mergers) Regulations 2007 be valid. Law made it easier for such mergers to obtain position and provide a structure for how this method works. The fundamentals are to facilitate the UK company occupied must file with companies house, a summary print of the merger, a “duplicate of any court arrange summon a conference of members of creditors and a accomplished cross-border mergers appearance and this have to be offered to the registrar at least two months before the first meeting of members. The process then continues.”[10]
4. Why mergers and acquisitions fail
The breakdown of an acquisition to produce good income for the parent company may be explained by the straightforward information that they compensated too much for it. “Having proposed passionately, the purchaser may find that the premium they rewarded for the acquired company’s shares wipes out any gains made from the acquisition” (Henry 2002).[11]
Conversely, even an agreement that is money-wise sound may eventually bear out to be a failure[12], if it is implemented in a technique that does not deal delicately with the companies’ employees and their diverse corporate cultures. There may be sharp contrasts among the attitudes and standards of the two companies, particularly if the new company crosses national boundaries.
A merger or acquisition is a tremendously traumatic method for those concerned, job sufferers, reformation, and the obligation of a new corporate culture and distinctiveness can produce uncertainty, nervousness and offense within the company’s employees (Appelbaum et al 2000). Research shows that “a firm’s output can drop by between 25 and 50 percent while undergoing such a large-scale change; demoralization of the workforce is a major reason for this” (Tetenbaum 1999)[13]. Companies regularly pay excessive concentration to the short-term legal and fiscal considerations mixed up with a merger or acquisition, and ignore the implications for corporate uniqueness and statement, factors that may show uniformly significant in the long run for the reason that of their impact on employees confidence and efficiency (Balmer and Dinnie 1999).
5. Strategies for a successful Amalgamation
A merger or foremost acquisition is habitually a distinctive, one-off event in the life span of a company, companies as a result have no chance to learn from their occurrence and build up tried-and-tested techniques to make sure that the practice is carried out efficiently. One famous exception to this is the financial-services corporation GE Capital[14] Services, which has complete more than 100 acquisitions through a five-year period (Ashkenas et al 1998). Through this widespread practice, GE Capital has come up with four fundamental lessons which might help other companies to merging.
i. The amalgamation of acquired companies is an ongoing process that should be initiated before the deal is actually closed. During the period in which the acquisition is being negotiated and subjected to regulatory review, the management of the two companies can liaise with each other and draw up a clear integration strategy. Well, if a very careful research is done earlier to the acquisition, there are frequent potential troubles that will not apparent themselves pending long past the contract has been completed (Ravenscraft and Scherer 1987). [15]
ii. Amalgamation management desires to be known as a “distinct business function“, with a skilled administrator appointed particularly to watch over the procedure.
iii. If scratchy changes need to be made at the acquired company, it is essential that those changes are announced and put into practice as quickly as feasible. If possible within time of the acquisition.
iv. Maybe the most imperative example is that it is important to join together not just for the useful aspects of the company, but also the company’s employees and their cultures. An excellent way to accomplish this is to generate groups comprising employees from both companies, and get a hold of them to work mutually at solving troubles.
6. Conclusions
Even though there are a lot of unusual opinions on accurately what causes so several mergers and acquisitions to be unsuccessful, and on how these troubles can be avoided, there are sure points that most analysts come into view to be in agreement. It is extensively accepted, for example, that the ‘human factor’ is a main reason of complexity in creating the amalgamation between two companies occupied successfully. If the changeover is carried out with no understanding towards the staff who may experience as a result of it, and lacking of understanding of the enormous differences that may be present among corporate cultures, the effect is a strained, miserable and unhelpful workforce – and as a result a drop in efficiency.
It is vital that a clear ‘amalgamation plan’ is in position, and that it is overseen by an enthusiastic manager with the knowledge and interpersonal ability to cool employees’ nervousness and settle cultural differences. Open and truthful announcement all through the procedure is very important in retaining the belief of employees.
BIBLIOGRAPHY
1. DePamphilis, Donald (2008). Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press.
2. Cartwright, Susan; Schoenberg, Richard (2006). “Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities”. British Journal of Management.
3. Rosenbaum, Joshua; Joshua Pearl (2009). Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions. Hoboken, NJ.
4. Straub, Thomas (2007). Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis. Wiesbaden: Deutscher Universitätsverlag.
5. Scott, Andy (2008). China Briefing: Mergers and Acquisitions in China (2nd Ed.).
6. Appelbaum, Steven H., Gandell, Joy, Jobin, Francois, Proper, Shay, and Yortis, Harry (2000), “Anatomy of a merger: behavior of organizational factors and processes throughout the pre- during- post-stages”, Management Decision.
7. Ashkenas, Ronald N., DeMonaco, Lawrence J. & Francis, Suzanne C. (1998), “Making the Deal Real: How GE Capital Integrates Acquisitions”, Harvard Business Review, Vol. 76, Issue 1.
8. Auerbauch, Alan J., and Reishus, David (1988), “The Impact of Taxation on Mergers and Acquisitions”. In Mergers and Acquisitions, edited by Alan J. Auerbauch. University of Chicago Press.
9. Balmer, John M.T., and Dinnie, Keith (1999), “Corporate identity and corporate communications: the antidote to merger madness”, Corporate Communications: An International Journal, Vol. 4 Number 4 1999.
10. BBC News online articles: “What now for Safeway suitors?” (27 Sep 2003), “TV bosses: two ferrets in a sack” (3 Oct 2003), “ITV merger gets the go-ahead” (7 Oct 2003).
11. Fairburn, James A., and Kay, John A. (1989), Mergers and Merger Policy. Oxford University Press.
12. George, Kenneth (1989), “Do we need a merger policy?”. In Mergers and Merger Policy (see above).
13. Henry, David (2002), “Mergers: Why Most Big Deals Don’t Pay Off”, Business Week, October 14, 2002.
14. Hughes, Alan (1989), “The Impact of Merger: a survey of empirical evidence for the UK”. In Mergers and Merger Policy (see above).
15. Ravenscraft, David J. & Scherer, F.M. (1987), Mergers, Sell-offs and Economic Efficiency. Washington, DC: The Brookings Institution.
16. Tetenbaum, Tony J. (1999), “Beating the odds of merger and acquisition failure: seven key practices that improve the chance for expected integration and synergies”, Organizational Dynamics, autumn 1999.
Correspondence
For: The Lawyers & Jurists
M.L.Hotel Tower Ltd,208,Shahid Syed Nazrul Islam Sarani,
Bijoy Nagar, Dhaka-1000.
Email-admin@lawyersnjurists.com/nomaer@hotmail.com
www.lawyersnjurists.com
Country code+ Ph No.
Ph:0088-02-9571389; 0088-02-9513408,
0088-02-9564329, 0088-02-9564398
Direct cell with country code:
Local Code :
a)0088-01733689444
b)0088-01674647033
C)0088-01552632768