The Role of Corporate Governance on Merger and Acquisition

Introduction
Mergers and acquisitions are corporate actions that, in general, unite two formerly
independent firms into a single legal entity. Combining two businesses can result in
significant operational benefits; in fact, the majority of mergers and acquisitions aim to
increase shareholder value and business performance in the long run. A merger is the mutual
choice of two businesses to unite and form a single business; it is referred to as a decision
taken by two "equals". The merged company can reduce expenses and enhance earnings by
using the structural and operational advantages that the merger has acquired, increasing
shareholder values for both sets of shareholders. To put it another way, a typical merger
consists of two nearly equal businesses coming together to form a single legal entity with the
intention of creating a business that is worth more than the sum of its parts. When two
corporations merge, the shareholders often receive an equal number of shares in the new
company in exchange for their old shares.
Conversely, an acquisition, often known as a takeover, is the buying of a smaller business by
a larger one. The benefits of this "unequal" combination can be equivalent to those of a
merger, but it need not be decided upon by both parties. A bigger business can start a hostile
takeover of a smaller one, which is essentially purchasing the business in the face of
opposition from the smaller business's management. In contrast to a merger, an acquisition
typically involves the acquiring firm offering the target firm's shareholders a cash price per
share, or the acquiring firm's shares to the target firm's shareholders based on a predetermined
conversion ratio. In either case, the target firm is effectively purchased outright for its
stockholders by the purchasing company through financing.

Objective behind Merger and Acquisition

There are many reasons or factors that motivate companies to go for mergers and
acquisitions. They are
1. Growth: One of the most frequent causes of mergers is expansion. A company can
expand along two main paths. The first way is by personal development. If a company
is trying to capitalize on a window of opportunity where it has a temporary advantage
over rivals, this might be slow and unsuccessful. The quicker option is to combine and
obtain the resources required to meet competitive objectives.
2. . Diversification: This is one of the additional justifications for mergers and
acquisitions. To mitigate the effect of a specific industry's performance on its
profitability, a firm that combines for the purpose of diversification may purchase
another company operating in an unrelated industry. With a few noteworthy
exceptions, mergers have a dismal track record of diversifying. Certain companies,
like General Electric, appear to be able to diversify yet still expand and increase
shareholder value. But this is not the rule; rather, it is the exception. Although
diversification may be beneficial, some businesses lack the infrastructure and
expertise needed for it.
 3. Economies of scale: It's true that size counts. A larger business placing the orders can
save more money on anything from new corporate IT systems to stationery purchases.
Increased purchasing power to purchase office supplies or equipment is another
benefit of mergers; when corporations place larger orders, they are better able to
bargain with suppliers for lower rates. This alludes to the idea that a combined
business can frequently eliminate redundant divisions or processes, hence cutting
costs in relation to an equivalent income stream in theory and boosting profit.
4. Increase Market Share and Revenue: This justification is predicated on the company's
ability to acquire a major competitor and then gain more market share, which will
give it more clout when it comes to setting prices. Businesses acquire businesses to
expand into new markets and increase profits and revenue. A merger could increase
the marketing and distribution reach of two businesses, opening up new sales
channels. A company's reputation among investors can also be enhanced by a merger,
as larger companies typically have an easier time obtaining funding than smaller ones.
Primer and Apollo Tyres are two examples.
5. Eliminate Competition: A lot of merger and acquisition agreements give the acquiring
company the opportunity to get rid of potential rivals and increase its market share in
the market for its product. The drawback of this is that a substantial premium is
typically needed to persuade the shareholders of the target company to accept the
offer. In reaction to the acquiring business paying too much for the target company, it
is not unusual for the shareholders of the acquiring company to sell their shares and
drive down the price.

Benefits/Needs of Merger and Acquisition

Acquisitions and mergers are long-term business combinations that provide management
total control over the combined company's operations. Due to the premium paid to encourage
approval of the merger or acquisition, shareholders in the selling company benefit from
mergers and acquisitions. It provides a far higher price than the share book value. Long-term
corporate growth results in premium growth for the purchasing company's shareholders.
The promoters, management, and owners of the combining companies advocate mergers and
acquisitions. Below is a brief summary of the benefits that encourage management and
shareholders to support these combinations and the associated costs they must pay.

 From the perspective of the shareholders: Since they own the business, shareholders
must gain from mergers and acquisitions. Acquisitions and mergers may have an
impact on stockholders' wealth. When companies merge, shareholders expect their
investment in the merged company to increase. Greater values ought to result from the
sale of shares by one shareholder to another and from retaining shares as an
investment. The benefits that stockholders would typically experience from each
merger and acquisition are listed below:
1. Face value of the share is increased.
2. Shareholders will get more returns on the investments made by them in the combining
companies.
3. Sale of shares from one company's shareholder to another is possible.
4. Shareholders get better investment opportunities in mergers and acquisitions.
 From the perspective of the manager: - Managers are focused on enhancing the
business's operations, successfully handling its affairs for overall gains, and seeing the
 business develop so they can negotiate better terms for promotions, incentives, and
other benefits. Managers will approve mergers where all of these outcomes are
guaranteed.
 From Consumers point of view: - Consumers are the king of the market so they must
get some benefits from mergers and acquisitions. Benefits in favour of the consumer
will depend upon the fact whether or not mergers increase or decrease competitive
economic and productive activity which directly affects the degree of welfare of the
consumers through changes in the price level, quality of the products and after sales
service etc.
Following are the benefits that consumers may derive from mergers and acquisitions
transactions;
1. Low price and better-quality goods: - The economic gains realized from mergers
and acquisitions are passed on to consumers in the form of low priced and better-
quality goods.
2. Improve standard of living of the consumers: - Low priced and better-quality
products directly improves standard of living of the consumers.

 From Promoters point of view: -

1. Mergers offer company's promoters advantages of increase in the size of their
company, financial structure and financial strength.
2. Mergers can convert closely held and private limited company into public limited
company without contributing much wealth and losing control of promoters over the
company.

Limitation of Merger and Acquisition

Drawbacks
The number of competing businesses in an industry may decline as a result of a merger or
acquisition of two businesses in the same or different fields, which tends to lessen market
competition. In most cases, they have a direct impact on the concentration of economic power
and are likely to propel the merging firms into a dominant market position. Less alternatives
could enter the market as a result, which would be detrimental to the welfare of consumers.
Another drawback could arise if a sizable project experiences complacency and performance
degradation over time as a result of the resultant dominance following a merger. Here are a
few drawbacks of mergers and acquisitions:

 Creates monopoly- when two firms merged together they get dominating position in
the market which may lead to create monopoly in the market.
 Leads to unemployment- Raiders shouldn't have the right to buy up firms they have
no idea how to run - the employees who have spent their lives building up the firm
should be making the decisions.
 Raiders become filthy rich without producing anything, at the expense of hardworking
people who do produce something.
 Managers pressured to forego long-term investment in favour of short-term profit.
 Shareholders may be paid lesser dividend if the firm is not making profits. There may
be a possibility that shareholders would be paid less returns on investment if the
company is not earning enough profit.
  Corporate raiders use their control to strip assets from the target, make a quick profit,
destroying the company in the process, throwing people out of work.
 Corporate debt levels have risen to dangerous levels.

Procedure of Merger
1. Look for a merger partner: Finding a merger partner is the first stage in any
merger. The senior management may leverage their personal network inside the
same industry or another varied field to find potential merger partners. This kind
of identification ought to be predicated on the comprehensive data gathered from
both public and private sources regarding the merger partners.
2. Agreement between the two firms: Although an agreement between the merging
companies initiates the actual merger procedure, it is not legally binding unless
the transaction is approved by the court in accordance with section 230 of the
firms Act of 2013.
3. Scheme of merger - The companies that have decided to unite should create the
scheme of merger. A merger plan does not need to follow a certain form, but it
should include the following details:
 Particulars about the merging companies.
 Main terms of transfer of assets and liabilities from transferor to transferee.
 Conditions of conducting business.
 Particulars about share capital of merging companies specifying authorized
capital issued capital and paid-up capital.
 Description of proposed profit-sharing ratio and any condition attached to
it.
 Conditions about payment of dividend.
 Status of employees of the merging companies and also status of provident
fund, gratuity fund or any funds created for the benefits of existing
employees.
 Treatment of debit balance of merging companies.
 Miscellaneous provisions covering income tax dues, contingencies and
other accounting entries.
4. Board of Directors approval of the plan: The boards of directors of the transferor
and transferee firms must each approve the merger plan.
5. Financial institution approval of the plan: The plan should actually be approved
by the Board of Directors following approval by the banks that have loaned
money to the companies and the financial institutions, debenture holders, and
others.
6. Court approval of the plan: The Court will determine whether or not to approve
the merger plan after receiving the application for merger. Firms may merge after
the application has been accepted by the court.
7. Notification to stock exchanges: Following the merger, the company that inherits
the Transferor Company's assets and liabilities should apply to the stock
exchanges where its securities are listed in order to list the additional shares that
the company has distributed to its shareholders.
8. Public announcement: In the location where the company's shares are listed and
traded, public announcements must appear in a minimum of three daily
 newspapers: one in Hindi, one in English, and one in a regional language.

Participants to Merger and Acquisition

Mergers and Acquisitions process requires highly skilled and qualified group of advisers.
Each advisor specializes in a specific aspect of the merger and acquisition process. The role
played by such advisers or professional experts are as follows;

1. Investment bankers: Investment banking is one of the most important

departments in the process of mergers and acquisitions. It is fee-based adviser
department which works with the company that wish to acquire other
company or with industries that wish to purchase a smaller industry. The main
role of investment banks is to provide finance for mergers and acquisitions
transactions.
2. Lawyers: The legal framework surrounding a typical transaction has become
so complicated that no one individual can have sufficient expertise to address
all the issues. In large and complicated transactions, legal teams consists of
more than one dozen lawyers each of them represents specialized aspects of
law. Lawyers are expected to perform all legal proceedings.
3. Accountants: Services provided by accountants include advice on the optimal
tax structure, financial structuring and performing financial due diligence. A
transaction can be structured in many different ways, with each having
different tax implications for the parties involved. Tax accountants are vital in
determining the appropriate tax structure. Accountants also perform the role of
auditors by reviewing the transferor company's financial statements and
operations through a series of interviews with senior and middle level
managers.
4. Valuation experts: They may be appointed either by the bidder or the
Transferor Company to determine the value of the transferor company. They
build models that incorporate various assumptions such as costs or revenue
growth rate.
5. Institutional investors: They include public and private pension funds,
insurance companies, banks, mutual funds. Collection of institutions can
influence firm's action. They invest their money in the company.

Factors Responsible for successful Merger and Acquisition

1. Strategy- Strategy is the basis for any merger and acquisition. Company
should be able to express in one sentence the motive behind merger and
acquisition. If the transferor company is not able to express the motive for
doing a deal for merger, then the deal should not be done. There are many
strategic reasons to buy a company some of them are listed as follows;
• Acquire Innovative technical skills.
• Obtain new markets and customer.
 • Enhance product line.
2) Motive- Buying company i.e. transferor company does not know reasons
why another company is being sold. It should ask reasons for selling the
company. Transferor Company should also try to know what selling company
knows about the business that they are not telling potential buyers. After
knowing all reasons for selling a company buying company would be in a
position to decide whether to go for a deal or not. If they are going for deal
then buying company should decide appropriate price for the deal. Buying
company should also examine its own motive for wanting to acquire the
company, whether it is good asset for the company that would enhance the
market of buying company.
3) Price- A low price does not always equate to a good deal, but higher the
price; it is fewer cushions for unexpected problems. Buying company is often
forced to pay more price than they want to pay for the deal. In a competitive
situation the buying company needs to decide how much it is willing to pay
and not exceed that level, even if it means losing the company. However, in
any merger and acquisition there is a pricing range, based on different
assumptions of the future performance of the merger and acquisition. The
buying company has to decide the price to offer for the deal, or how risk will
be divided between shareholders of merging company.
4) Post Merger Management- For a merger to succeed much work a remains
after the deal has been signed. The strategy and business model of the old
firms may no longer be appropriate when a new firm is formed. Each firm is
unique and presents it's own set of problems and solutions. It takes a
systematic effort to combine two or more companies after they have come
under a single ownership.
Factors responsible for failure of Merger and Acquisition
As there are many factors responsible for success of mergers similarly there are many factors
responsible for failure of the merger. The main factor is buying wrong company at wrong
time, at wrong place and by paying wrong price. If the process through which merger is
executed is faulty then it will affect merger adversely. Historical trends show that roughly two
thirds of big mergers will disappoint on their own terms, which means they will lose value on
the stock market. Some of reasons for failure of mergers and acquisitions are listed below;
1) Payment of high price- The merger fails when the maximum price is paid
to buy another company. In such situation shareholders of Transferee
Company will receive more cash but the shareholders of Transferor
Company will pay more cash. As a result of this deal for merger will fail.
2) Culture clash- Lack of proper communication, differing expectations and
conflicting management styles due to differences in corporate culture
contribute to failure in implementing plan and therefore, failure of mergers
and acquisitions.
3) Overstated synergies: - An acquisition can create opportunities of synergy
by increasing revenues, reducing costs, reducing net working capital and
 improving the investment intensity. Over estimation of such synergies may
lead to a failure of this merger. Inability to prepare plans leads to failure of
mergers and acquisitions.
4) Failure to integrate operations- Once firms are merged management must
be prepared to adapt plans in favour of changed circumstances. Inability to
prepare plans leads to failure of mergers and acquisitions.
5) Inadequate due diligence- The process of the due diligence helps in
detecting any financial and business risks that the buyer might inherit from
the seller. Inadequate due diligence results in the failure of the mergers and
acquisitions.
Study of Major Merger and Acquisitions
Merger of Tech Mahindra and Mahindra Satyam
About Tech Mahindra
Mahindra & Mahindra Limited, in collaboration with British Telecommunications Plc, owns
the majority of Tech Mahindra, a prominent supplier of services and solutions to the
telecommunications sector. With their tried-and-true delivery methods, unique IT
competencies, and decades of industry experience, Tech Mahindra helps telecom service
providers, equipment makers, software vendors, and systems integrators all around the world
optimize the returns on their IT investments.
The main locations of Tech Mahindra are in the UK, the US, Germany, the United Arab
Emirates, Egypt, Singapore, India, Thailand, Taiwan, Malaysia, the Philippines, Canada, and
Australia. One of the top 10 corporate houses in India, Tech Mahindra Ltd. is a member of
the US $14.4 billion Mahindra Group, a global industrial confederation of enterprises.

About Mahindra System

Leading global provider of business and IT services, Mahindra Satyam works with clients to
transform their most valuable business processes and boost productivity by utilizing cutting-
edge technology practices, deep industry and functional knowledge, and an advanced global
delivery model.

One of the top 10 corporate houses in India, Mahindra Satyam is a component of the $14.4
billion Mahindra Group, a global conglomerate of firms. With a dominant position in tractors,
utility vehicles, information technology, vacation ownership, rural and semi-urban banking
services, and other important industries that propel economic growth, Mahindra participates
in these sectors. In addition to the automotive industry, Mahindra is also heavily and rapidly
expanding in the agribusiness, aerospace, automotive components, defense, energy, industrial
equipment, logistics, real estate, retail, steel, and two other wheelers.

About The Merger

Tech Mahindra acquired Satyam Computers through a government-mediated auction in April
2009 after a multi-billion dollar scam by its founding Chairman B Ramalinga Raju was
unearthed.
The Board of Directors of Tech Mahindra and Mahindra Satyam had approved the Scheme of
Amalgamation at their respective Board Meetings held on 21st March 2012.
The Scheme was approved by the Bombay High Court on the grounds that,
The Scheme would also be subject to the approval of the Andhra Pradesh High Court-
• The Scheme appears to be fair and reasonable and is not violative of any provisions of law
and is not contrary to public policy.
• Also, none of the parties concerned had come forward to oppose the Scheme before the
Bombay High Court.
The decision was since pending for the receipt of approval from the Andhra Pradesh High
Court.

The Verdict
Judge N.R.L. Nageswar Rao denied all petitions attempting to stop the merger, stating that
the plan of consolidation serves the interests of the shareholders, the general public, and the
workforce. Within 30 days, he mandated that the comprehensive merger plan, known as the
scheme of amalgamation, be submitted to the Registrar of Companies.

While approving the merger, the high court stated that Ramalinga Raju and others will
continue to be the subject of ongoing investigations and prosecutions. It stated that Tech
Mahindra ought to collaborate with investigative organizations like the Enforcement
Directorate and the Serious Fraud Investigation Office. According to the conditions of the
merger, the two companies' plan of amalgamation would be retroactively effective to April
2011.

Analysis of the approval by the Andhra Pradesh High Court

A Scheme of Arrangement requested under section 391 of the Companies Act, 1956, is
subject to a court review to determine whether or not the Act's requirements have been met,
the legitimacy of the majority, and the scheme's reasonableness. In this instance, the judge
determined that the scheme was reasonable and in the public interest.

Furthermore, the Court shouldn't allow the Scheme to proceed just because a small number of
people objected. Since the Court's function in this matter is merely supervisory and it cannot
disregard the advice of experts who have worked on the Swap Ratio and when it has been
approved by the majority of shareholders, the Court rejected the complaints of the
stakeholders. Since valuation is a technical process requiring experience, there may be
sincere disagreements on the appropriate Swap Ratio. The Court will not interfere with the
amalgamation plan unless the party contesting the valuation can persuade the Court that the
valuation is incorrect.
The Court further mandated that Tech Mahindra cooperate with all relevant agencies,
something Tech Mahindra immediately consented to, and that all ongoing investigations
against Ramalinga Raju continue until they are concluded or vacated by the appropriate
competent body.

Conclusion
The operational merger between Tech Mahindra and its affiliate would lessen the company's
reliance on the telecom industry, which currently accounts for 97% of its revenue but will no
longer account for more than 50% of the merged company.

When Satyam's founder, B. Ramalinga Raju, admitted in January 2009 to having falsified
accounting totalling Rs7,136 crore over a number of years, the union might assist put the
scandal behind it once and for all. His admission set off a chain reaction of staff and client
defections that ultimately led to the 1987 startup he established becoming India's fourth
largest software services provider being sold. The Satyam brand name is diluted as a result of
this transaction, eliminating whatever previously negative associations the brand may have
had.

Merger Of Tata Motors and Ford Motors

About Tata Motors

The biggest car manufacturer in India is Tata Motors. With more than 4 million automobiles
on the road in India, Tata is the market leader for both commercial and passenger vehicles. In
addition, it is the second-biggest bus and truck manufacturer in the world. Several nations in
Europe, Africa, the Middle East, South Asia, South East Asia, and South America sell Tata
automobiles, buses, and trucks. Tata Motors operates in South Korea, Thailand, and Spain
through its affiliates and subsidiaries. Fiat and it have a strategic alliance as well.

About Ford
American origins lie with the multinational automaker Ford Motor Company. It produces and
markets cars, trucks, buses, and tractors all over the world. The two active Ford brands at the
moment are Lincoln and Troller, a Brazilian maker of SUVs. Ford's US headquarters are
located in Dearborn, Michigan.
Merger of Tata Motors and Ford
As previously reported on March 26, Tata Motors today completed the all-cash acquisition of
the Jaguar and Land Rover businesses from Ford Motor Company for a net consideration of
US $2.3 billion. Ford has made around US $600 million contributions to the pension schemes
of Jaguar Land Rover.

Along with Mr. Don Leclair, Executive Vice President and Chief Financial Officer of Ford
Motor Company, and Mr. Lewis Booth, Executive Vice President of Ford Motor Company,
who oversees Ford of Europe, Volvo, and Jaguar Land Rover, Mr. Ratan N. Tata was present
at the handover ceremony held at the Jaguar Land Rover headquarters in Gaydon, UK.

Tata Motors has officially announced that Mr. David Smith, who now serves as Jaguar Land
Rover's interim CEO, will take over as the company's next CEO. Mr. Smith has worked with
Ford, Jaguar, Land Rover, and Jaguar for 25 years. He held the position of Director of
Finance and Business Strategy at PAG and Ford of Europe prior to his recent return to Jaguar
Land Rover as head of the company's financial department.

At a cash-free, debt-free price of US$ 2.3 billion, Jaguar Land Rover was purchased. The
purchase transaction comprises manufacturing facilities, two state-of-the-art design centers
located in the United Kingdom, a global network of National Sales Companies, and
ownership or permanent royalty-free licences of all relevant intellectual property rights by
Jaguar and Land Rover.

Long-term contracts have been signed to supply Jaguar Land Rover with engines, stampings,
and other parts. Ford also provides transition support in the areas of accounting, IT, and test
facility access. The two businesses will keep working together on projects including
powertrain engineering, hybrid technology development, and platform sharing for design and
development. During a transitional phase, Ford Motor Credit Company will continue to
finance Jaguar Land Rover dealers and customers. Tata Motors is likely to choose financial
services partners soon. The company is in an advanced stage of negotiations with top auto
finance companies to support the Jaguar Land Rover business in the US, UK, and Europe.

Conclusion

No two people fit the same. Many businesses discover that increasing ownership borders
through mergers and acquisitions is the most effective strategy for success. Mergers, in
principle at least, create economies of scale by growing operations and reducing expenses.
The expectation that a combination will result in increased market strength should reassure
investors.
These days, a lot of businesses are choosing to expand through mergers and acquisitions.
However, the merger process is laborious and nearly takes seven months. As a result, the
majority of mergers and acquisitions remain unfinished.

Government laws and regulations frequently have an impact on mergers and acquisitions; in
the majority of nations, foreign businesses are not permitted to enter the local market on their
own. These international businesses are only permitted to join if they merge with a local
business.
The number of mergers and acquisitions is declining, according to the present trend.
Expertise personnel are now more in demand as a result of mergers and acquisitions. Experts
in valuation, law, accounting, etc. are examples of experts.

Only when a merger or acquisition is effectively carried out can it produce positive outcomes.

Bibliography

https://www.scirp.org/journal/paperinformation?paperid=91980

https://www.researchgate.net/publication/
328646936_Mergers_and_Acquisitions_A_Research_Overview

http://www.igidr.ac.in/conf/oldmoney/MERGERS%20AND%20ACQUISITIONS%20IN
%20INDIA.pdf

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