Mergers and the Case Study with Respect to Pakistan and India

Group Members:
Ayesha Ambreen 33-FSL/LLB5Y/S20
Arooj Awan 1- FSL/LLB5Y/S20
Ismat Zahra 20-FSL/LLB5Y/S20
Malaika Ijaz FSL51-/LLB5Y/S20
Sana 32-FSL/LLB5Y/S20

Competition Law
Dr. Sayyeda Fatima
11 November 2022
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Table of Contents
Why do Mergers Happen?.......................................................................................................................................5
Types of Merger………………………………………………………………………………………………...….6

1. Conglomerate mergers.......................................................................................................................................8
2. Horizontal mergers............................................................................................................................................8
3. Vertical mergers.................................................................................................................................................8
4. Market extension mergers..................................................................................................................................8
5. Product extension mergers.................................................................................................................................8

Examples of major mergers............................................................................................................................. 12

America Online and Time Warner.......................................................................................................................13
Pfizer and Warner-Lambert.................................................................................................................................13
Exxon and Mobil....................................................................................................................................................13
Disney and Fox........................................................................................................................................................14
1. Economies of Scale.............................................................................................................................................15
3. Synergies..............................................................................................................................................................16
6. Higher Levels of Competition...........................................................................................................................17
7. Access to Talent..................................................................................................................................................17
8. Diversification of Risk........................................................................................................................................18
9. Faster Strategy Implementation............................................................................................................................18
10. Tax Benefits.......................................................................................................................................................19
Disadvantages of a Merger....................................................................................................................................20
Motives and Reasons..............................................................................................................................................21
1. Value creation.......................................................................................................................................................21
2. Diversification......................................................................................................................................................22
3. Acquisition of assets.............................................................................................................................................22
4. Increase in financial capacity...............................................................................................................................23
5. Tax purposes.........................................................................................................................................................23
Case Laws Related to Mergers (India)……………………………………………………………………….....23
Mergers and Acquisitions in Pakistan………………………………………………………………………..…33
Theories of mergers................................................................................................................................................40
Conclusion……………………………………………………………………………………………………………………………………………………47
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INTRODUCTION

A merger is a legal consolidation of two businesses entitles into one. A merger is

the joining together of two separate companies or organizations so that they become one.

Synonyms of merger are union, fusion, consolidation, amalgamation. Mergers have always

played a vital role in corporate history, ranging from ‘greed is good’ corporate raiders buying

companies in a hostile manner and breaking them apart, to today’s trend to use mergers for

external and industry consolidation. A merger is a corporate strategy to combine with another

company and operate as a single legal entity. Merger can be applied for when the freehold and

leasehold estates become vested in the same person. The companies agreeing to mergers are

typically equal in terms of size and scale of operations.1

The mergers have brief history. Six periods of high merger activity, often called merger

waves, have taken place in U.S. history. Research has shown that merger waves tend to be

caused by a combination of economic, regulatory, and technological shocks. The first four waves

occurred between 1897 and 1904, 1916 and 1929, 1965 and 1969, and 1984 and 1989. The first

merger wave occurred after the depression of 1883, peaked between 1898 and 1902, and ended

in 1904.

During the second merger wave, several industries were consolidated. The third merger

wave featured a historically high level of merger activity. After the third merger wave, a historic

merger paved the way for a type that would be pervasive in the fourth wave: the hostile takeover
1
ZAFAR & ASSOCIATES. “LLP | Antitrust or Competition Law - Pakistan." June 15, 2018.
Accessed September 29, 2022. https://zallp.com/practice/competition_law/
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by major established companies. Clearly, the value of deals in the sixth merger wave covering

the four-year period 2004-2007 was comparable to the fifth wave and exceeded that of the fourth

wave.2

The competition law deals with mergers. Competition law, also known as anti-trust law,

promotes or maintains market competition in a free market economy by enforcing anti-

competitive regulations to prevent firms or companies involving in abuse or dominant position,

deceptive market practices, indulging in anti-competitive agreements and prohibited mergers that

would substantially lessen the competition. In nutshell, the competition law is the body of

legislation intended to prevent market distortion caused by anti-competitive practices on the part

of businesses.

The purpose of competition law is ensuring a fair marketplace for consumers and

producers by prohibiting unethical malpractices design to garner greater market share than what

could be realized through honest competition. The effects of anti-competitive malpractices

include not just difficulty for smaller companies entering or succeeding in a domestic market, but

also higher consumer prices, poorer services and limited innovative ideas.

What is merger?

A merger is a legal consolidation of two businesses entitles into one. A merger is

the joining together of two separate companies or organizations so that they become one.

Synonyms of merger are union, fusion, consolidation, amalgamation. A company merger occurs

when two firms come together to form a new company with one combined stock. Although a

merger is typically thought of as an equal split in which each side maintains 50% of the new

2
. Patrick
A. Gaughan."History of Mergers - Wiley Online Library." December 06, 2017.
Accessed October 11, 2022. https://onlinelibrary.wiley.com/doi/
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company, that’s not always the case. In some mergers, one of the original entities gets a larger

percentage of ownership of the new company.

Definitions of mergers

In the academic literature, there are number of authors, who define merger, acquisition

and takeover differently.3

According to Sudarsanam (1995)

“A merger takes place when two or more corporations come together to contribute and

share their resources to achieve common objectives”.

According to Sherman and Hart (2006)

“A merger is a combination of two or more companies in which the assets and liabilities

of the selling firms are absorbed by the buying firm”.

According to Gaughan (2002)

“A merger is a process in which two corporations combine and only one survives and the

merged corporation ceases to exist. Sometimes there is a combination of two companies where

both the companies cease to exist and an entirely new company is created”.

General definitions

“A corporate strategy to combine with another company and operate as a single legal

entity’.

Or

“A merger is when two companies come together to form one company with new stock”.

Or

. Collins. "Merger definition and meaning | Collins English Dictionary." March 12, 2018.
3

Accessed October 17, 2022. https://www.collinsdictionary.com/dictionary/english/merger.

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“The absorption of an estate, a contract, or an interest in another, of a minor offense in

a greater, or of a cause of action into a judgment”. 4

Why do Mergers Happen?

Mergers are a great way for two companies with unique experience and expertise to come

together and form one business that is more profitable than the two entities were on their own.

There are several reasons why two companies might want to merge. Sometimes, it is out of

convenience, and other times, it is out of necessity. Regardless of the specifics, the goal of a

merger is to take advantage of opportunities in the marketplace that benefit both businesses.

“The companies may be looking to take advantage of financial synergies, opportunities

for efficiencies, new market dynamics or a chance at product diversification, to name a few

things,” “The companies may see opportunities by merging product lines or by cutting

redundancies, like having two CFOs when one will suffice for both companies if they come

together.”

1. After the merger, companies will secure more resources and the scale of operations will

increase.

2. Companies may undergo a merger to benefit their shareholders. The existing shareholders of

the original organizations receive shares in the new company after the merger.

3. Companies may agree for a merger to enter new markets or diversify their offering

of products and services, consequently increasing profits.

4. Mergers also take place when companies want to acquire assets that would take time to

develop internally.
4
. UK essays. "Definition of Mergers and Acquisitions” July 29, 2022. Accessed
November 3, 2022. https://www.ukessays.com/essays/marketing/definition-of-mergers-and-
acquisitions-marketing-essay.php.
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5. To lower the tax liability, a company generating substantial taxable income may look to

merge with a company with significant tax loss carries forward.

6. A merger between companies will eliminate competition among them, thus reducing the

advertising price of the products. In addition, the reduction in prices will benefit customers

and eventually increase sales.

7. Mergers may result in better planning and utilization of financial resource.

8. A company merger is when two companies combine to form a new company.

Companies merge to expand their market share, diversify products, reduce risk and competition,

and increase profits. Common types of company mergers include conglomerates, horizontal

mergers, vertical mergers, market extensions and product extensions.

A company merger can happen for many reasons. Although very few business owners

build their business in anticipation of one day merging with another company, the right business

mergers can be very beneficial. Learn about the different types of mergers and their benefits.5

How does a company merger work?

A company merger occurs when two businesses with similar synergies decide that being

one company together will yield more profits than being two separate entities. During a merger,

the companies involved are likely to undergo quite a bit of restructuring in terms of corporate

leadership and operations. When a company merger happens, the two equal companies can

convert their previous stocks into one new, combined company stock. First, they must decide

what each company is worth, and then they split the ownership of the new company accordingly.

5
. CFI Team. “Corporate finance”. January 30, 2022. Accessed September 30, 2022.
https://corporatefinanceinstitute.com/resources/knowledge/deals/merger/
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“For example, it may be determined that company A is worth $100 million and company

B is worth $200 million, making the combined value of the new company worth $300 million,”

said Terry Monroe, founder and president of “American Business Brokers & Advisors”.

“Therefore, the stocks from each of the companies will be surrendered, and new stock will be

issued in the name of the new company based on the valuation of $300 million. The stock

owners from company A would get one share of stock in the new company, and stock owners

from company B would get two shares of stock in the new company.”6

Although the creation of a brand-new stock with the new entity is ideal in theory, it is not

always what happens. In fact, oftentimes, when two companies merge, one company chooses to

buy the other company’s common stock from its shareholders in exchange for its own stock.

Types of Mergers

The merger type is based primarily on the industry and the business relationship between the two

merging companies. The term chosen to describe the merger depends on the economic function,

purpose of the business transaction and relationship between the merging companies. There are

five commonly-referred to types of business combinations known as mergers:

1. Conglomerate mergers

2. Horizontal mergers

3. Vertical mergers

4. Market extension mergers

5. Product extension mergers

6
. Skye Schooley. “Business News Daily Staff”. June 29, 2022. Accessed November 03,
2022. https://www.businessnewsdaily.com/15786-company-mergers.html
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Conglomerate merger

Conglomerate merger is a union of companies from different industries operating in

unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure

conglomerate mergers involve firms with nothing in common, while mixed conglomerate

mergers involve firms that are looking for product extensions or market extensions.

The union will take place only if it increases the wealth of the shareholders. The benefits

of a conglomerate merger include diversifying business operations, cross-selling products and

minimizing risk exposure.

Example

A leading manufacturer of athletic shoes, merges with a soft drink firm. The resulting

company is faced with the same competition in each of its two markets after the merger as the

individual firms were before the merger.

Another example of a conglomerate merger was the merger between the Walt Disney

Company and the American Broadcasting Company.7

Horizontal merger

A horizontal merger is the combination of two companies from the same industry selling

similar products or services; these companies can include direct and indirect competitors.

Horizontal mergers are common in industries with fewer firms, as competition tends to be higher

and the synergies and potential gains in market share are much greater for merging firms in such

an industry. It results in the elimination of competition; hence, economies of scale can be

achieved.
7
. CFI Team. “Merger overview, types” January 30, 2022. Accessed October 17, 2022.
https://corporatefinanceinstitute.com/resources/knowledge/deals/merger
 9

The benefits of a horizontal merger include greater buying power, more marketing

opportunities, less competition and a larger audience reach. Monroe said this type of merger is

common in the restaurant industry, where different brands of restaurants merge to reach a wider

customer base and gain greater buying power from the same vendors.

Monroe said,

“For example, in 2019, Papa Murphy’s, a company in the pizza business, merged with a

company called MTY Food Group – which owns restaurants such as TCBY, Cold Stone

Creamery and Planet Smoothie – which would allow the new company to have a centralized

marketing and advertising department and franchised sales department,”

Example

A merger between Coca-Cola and the Pepsi beverage division, for example, would be

horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with

more market share. Because the merging companies' business operations may be very similar,

there may be opportunities to join certain operations, such as manufacturing, and reduce costs.8

Vertical merger

A vertical merger is the combination of two companies that operate in different stages of

the same supply chain, producing different goods or services for the same finished product (e.g.,

one company sells something to the other company). Such mergers happen to increase

synergies, supply chain control, and efficiency. The benefits of a vertical merger include a more

efficient supply chain, lower costs and increased product control.

Example

. Dr. Anas F. Alhajji. "World, US, China, India Economy, Investment, Finance, Credit
8

Cards “may 20, 2021. Accessed October 19, 2022. https://www.economywatch.com/.

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A vertical merger joins two companies that may not compete with each other, but exist in

the same supply chain. An automobile company joining with a parts supplier would be an

example of a vertical merger. Such a deal would allow the automobile division to obtain better

pricing on parts and have better control over the manufacturing process.9 The parts division, in

turn, would be guaranteed a steady stream of business.

Another example of this type of merger is when The Walt Disney Company merged with

Pixar Animation Studios for its innovative animations and talented employees

Market extension merger

A market extension merger, similar to a horizontal merger, is the combination of two

companies from the same industry; however, in this merger, the two companies are from separate

markets, combine in order to access a larger market and larger customer base. The primary

benefit of this merger is to expand and increase market share. Monroe said this type of merger is

commonly seen with banks.

“With the government implementing more regulation and compliance from banks, it

sometimes behooves smaller bankers to merge with other banks of similar size to reduce the cost

of operations and regulatory compliance and increase their market share, since they all offer

essentially the same product,” Monroe said.

Example

A very good example of market extension merger is the acquisition of Eagle Bancshares

Inc. by the RBC Centura. Eagle Bancshares is headquartered at Atlanta, Georgia and has 283

workers. It has almost 90,000 accounts and looks after assets worth US $1.1 billion.

9
. Minority business development agency.” 5 types of company mergers”. April 05, 2012.
Accessed October 23, 2022. https://archive.mbda.gov/news/blog/2012/04/5-types-company-mergers.html
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Eagle Bancshares also holds the Tucker Federal Bank, which is one of the ten biggest

banks in the metropolitan Atlanta region as far as deposit market share is concerned. One of the

major benefits of this acquisition is that this acquisition enables the RBC to go ahead with its

growth operations in the North American market.

With the help of this acquisition RBC has got a chance to deal in the financial market of

Atlanta, which is among the leading upcoming financial markets in the USA. This move would

allow RBC to diversify its base of operations.10

Product extension merger

A product extension merger, also known as a congeneric merger, is the combination of

two companies that sell similar, but not necessarily competing, products. The merger results in

the addition of a new product to the existing product line of one company. This ensures that they

earn higher profits. As a result of the union, companies can access a larger customer base and

increase their market share.

The benefits of a product extension merger are expanding customer reach and increasing

profits. Monroe said this type of merger is very common in the software industry, where one

company may offer a virus protection software and another company may offer financial

protection software for your personal financial data. Monroe said.

“The idea of these two companies merging would be a good idea, as both of their

products would be applicable to the same customer. The product merger can continually be

extended with add-on services and products once a customer has been acquired.”

Example

. Dassos Troullides “World, US, China, India Economy, Investment, Finance, Credit
10

Cards". May 20, 2021. Accessed October 28, 2022. https://www.economywatch.com/.

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The acquisition of Mobilink Telecom Inc. by Broadcom is a proper example of product

extension merger. Broadcom deals in the manufacturing Bluetooth personal area network

hardware systems and chips for IEEE 802.11b wireless LAN.

Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets

that are equipped with the Global System for Mobile Communications technology. It is also in

the process of being certified to produce wireless networking chips that have high speed and

General Packet Radio Service technology. It is expected that the products of Mobilink Telecom

Inc. would be complementing the wireless products of Broadcom.

Examples of major mergers

We’ve covered a few examples of mergers, but they only tell part of the story. Some of

the largest corporate mergers in history can highlight the scope of these deals and what

companies stand to benefit from going through the process. When mergers reach this scale,

governments get involved, as the rippling effects of the merger can shake up entire economies.11

America Online and Time Warner

This merger happened in 2000 and began the massive consolidation of internet service

providers. At the time, America Online was the largest ISP in the business, but cable providers

were beginning to realize that internet services were the future. Time Warner was valued at $164

billion and one of the biggest cable companies in the United States.

This merger put two powerhouses together, and the new company created the roadmap

for utilizing cable infrastructure to rapidly and dramatically improve internet access and

performance.

. Investopedia. "Merger: Definition, How It Works with Types and Examples”. May 08,
11

2022. Accessed October 22, 2022. https://www.investopedia.com/terms/m/merger.asp.

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Pfizer and Warner-Lambert

This is another major merger that happened in 2000. In this case, both companies existed

in the pharmaceutical space. Originally, Warner-Lambert was planning to sell to a different

company, American Home Products. That deal collapsed, and Pfizer swooped in to complete a

merger of its own.

The merger went through for $90 billion, and the two companies were able to consolidate

profits for production and distribution of the cholesterol medication known as Lipitor.

Exxon and Mobil

This merger happened a year earlier than some of the other giants’ mergers – in 1999.

These were already two of the largest oil refinery and distribution companies in the world. Their

merger consolidated those resources, and the impact was so great that it changed the price of

crude oil forever. That was actually the motivation for the merger, as it reallocated more than

2,000 gas stations across the U.S. You might recognize the resulting company, ExxonMobil, as

the result of this merger.12

Disney and Fox

The Disney and Fox merger was announced in 2019 to the tune of $52.4 billion. The

price eventually rose to $71.3 billion before the deal was finalized, making it one of the largest

mergers in history. It also represented one of the largest industry consolidations ever recorded.

Disney and Fox were already two of the three largest media content owners in the world. With

.Skye Schooley. “What is a Company Merger”. July 30, 2022. Accessed November 03,
12

2022. https://www.businessnewsdaily.com/15786-company-mergers.html
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this merger, they became a superpower, with ownership of more movie and TV IPs than any

other organization in history so far.

Anheuser-Busch InBev (BUD)

Anheuser-Busch InBev (BUD) is an example of how mergers work and unite companies

together. The company is the result of multiple mergers, consolidation, and market extensions in

the beer market. The newly named company, Anheuser-Busch InBev, is the result of the

mergers of three large international beverage companies—Interbrew (Belgium), Ambev

(Brazil), and Anheuser-Busch (United States).

Ambev merged with Interbrew uniting the number three and five largest brewers in the

world. When Ambev and Anheuser-Busch merged, it united the number one and two largest

brewers in the world. This example represents both horizontal merger and market extension as it

was industry consolidation but also extended the international reach of all the combined

company’s brands.13

The advantages and disadvantages of mergers and acquisitions are depending of the new

companies short term and long term strategies and efforts. That is because of the factors likes’

market environment, variations in business culture, acquirement costs and changes to financial

power surrounding the business captured.

Advantages of Mergers

1. Economies of Scale

2. Economies of Scope

3. Synergies in Mergers and Acquisitions

4. Benefit in opportunistic Value Generation

. Kison Patel. “Benefits of Merger and acquisition”. October 19, 2020. Accessed
13

September 30, 2022. https://dealroom.net/blog/benefits-of-mergers-and-acquisitions

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5. Increased Market Share

6. Higher levels of Competition

7. Access to Talent

8. Diversification of Risk

9. Faster Strategy Implementation

10. Tax Benefits

1. Economies of Scale

Underpinning all of M&A activity is the promise of economies of scale. The benefits that

will come from becoming bigger:

a) Increased access to capital,

b) lower costs as a result of higher volume,

c) Better bargaining power with distributors, and more.

While buyers should always avoid the temptation to indulge in ‘empire building,’ as a

general rule, bigger companies usually enjoy advantages that small companies do not.14

2. Economies of Scope

Mergers and acquisitions bring economies of scope that aren’t always possible through

organic growth. One only has to look at Facebook to see that this is the case. Despite providing

users with the ability to share photos and contact friends within its platform, it still acquired

Instagram and Whatsapp.

Economies of scope thus allow companies to tap into the demand of a much larger client

base.

. CFI Team. “Advantages and disadvantages of mergers’. January 30, 2022. Accessed
14

October 24, 2022. https://corporatefinanceinstitute.com/resources/knowledge/deals/merger/

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3. Synergies

Synergies are typically described as ‘one plus one equaling three’: the value that comes

from two companies working together in tandem to make something far more powerful. An

example is provided by Disney acquiring Lucasfilm. Lucasfilm was already a huge cash

generator through the Star Wars franchise, but Disney can add theme park rides, toys and

merchandise to the customer offering.

4. Opportunistic Value Generation

Some of the best deals happen when a company isn't even actively pursuing an

acquisition. The hallmark of these acquisitions is that the purchase price is less than the fair

market value of the target company’s net assets. Often these companies will be in some financial

distress, but a deal can be made to keep the company afloat while the buyer benefits from adding

immediate value as a direct consequence of the transaction.15

5. Increased Market Share

One of the more common motives for undertaking M&A is increased market share.

Historically, retail banks have looked at geographical footprint as being key to achieving market

share and as a result, there has always been a high level of industry consolidation in retail

banking (most countries have a group of “Big Four” retail banks.

. Richard D. “Advantages and Disadvantages of Merger and acquisition”. January 01,

15

2016. Accessed October 11, 2022. https://www.mbaknol.com/strategic-management/advantages-

and-disadvantages-of-mergers-and-acquisitions/
 17

A good example is provided by the Spanish retail bank Santander, which has made the

acquisition of smaller banks an active policy, allowing it to become one of the largest retail

banks in the world.

6. Higher Levels of Competition

The larger the company, in theory, the more competitive it becomes. Again, this is

essentially one of the benefits of economies of scale: being bigger allows you to compete for

more. To take an example: there are currently dozens of upstart companies entering the plant-

based meat market, offering a range of vegetable-based ‘meats’. But when P&G or Nestle begin

to focus on this market, many of the upstarts will fall away, unable to compete with these

behemoths.

7. Access to Talent

Ask anybody in the recruitment industry where the biggest talent shortages currently are,

and the answer will invariably be a variant of ‘people that can code’.

Why is this?

Firstly, because of the huge demand for coders in the so-called fourth industrial

revolution. But also because all of the best coders are working for large Silicon Valley

technology companies. The biggest always have access to the best talent. That’s as true for every

other industry as it is for technology.16

8. Diversification of Risk

This goes hand-in-hand with economies of scope: By having more revenue streams, it

follows that a company can spread risk across those revenue streams, rather than having it focus

. Tejvan Pettinger. ”Knowledge and deals of Mergers” January 30, 2022. Accessed
16

October 19, 2022. https://corporatefinanceinstitute.com/resources/knowledge/deals/merger/

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on just one. To return to the example of Facebook: Some analysts suggest that younger eyeballs

are turning away from the social media giant towards other forms of social media. Instagram and

Whatsapp among them. When one revenue stream falls, an alternative stream of revenue may

hold, or even pick up, diversifying the acquiring company’s risk in the process.17

9. Faster Strategy Implementation

Mergers and Acquisitions may be the best way to make a long-term strategy to become a

mid-term strategy. Suppose a company wants to enter the Canadian market; it could build from

the ground up and hope that it reached the desirable scale in five to ten years. Or it could a

business, its client base, distribution, and brand value and benefit from them all upon closing of

the acquisition. This also goes for areas like new product development and R&D, where an

organic strategy can rarely match the speed provided by M&A.

10. Tax Benefits

Acquisitions can sometimes bring tax benefits if the target company is in a strategic

industry or a country with a favorable tax regime. The example of US pharmaceutical companies

looking at smaller Irish companies and moving their headquarters to Ireland to avail of its lower

tax base is a case in point. This is referred to as a ‘tax inversion’ deal. The well-documented

version was a proposed $160 billion merger between Pfizer and Allergan in 2016, subsequently

scuppered by US government intervention.

As this list shows, there are numerous benefits to good acquisitions. And what’s more,

the better constructed the deal, the more these benefits are likely to arise. Anybody looking to put

an M&A strategy into practice should consider which of these benefits they’re most looking for

from the acquisition when thinking about their motives for buying.

. Kison Patel. “Benefits of Merger and acquisition”. October 19, 2020. Accessed
17

September 30, 2022. https://dealroom.net/blog/benefits-of-mergers-and-acquisitions

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Disadvantages of a Merger

1. Raises prices of products or services.

A merger results in reduced competition and a larger market share. Thus, the new

company can gain a monopoly and increase the prices of its products or services.

2. Creates gaps in communication

The companies that have agreed to merge may have different cultures. It may result in a

gap in communication and affect the performance of the employees.

3. Creates unemployment

In an aggressive merger, a company may opt to eliminate the underperforming assets of

the other company. It may result in employees losing their jobs.

4. Prevents economies of scale

In cases where there is little in common between the companies, it may be difficult to

gain synergies. Also, a bigger company may be unable to motivate employees and achieve the

same degree of control. Thus, the new company may not be able to achieve economies of scale.

Loss of experienced workers aside from workers in leadership positions. This kind of loss

inevitably involves loss of business understand and on the other hand that will be worrying to

exchange or will exclusively get replaced at nice value.18

As a result of M&D employees of the small merging firm may require exhaustive re-skilling.

Company will face major difficulties thanks to frictions and internal competition that may occur

among the staff of the united companies. There is conjointly risk of getting surplus employees in

some departments.

. UK essays. “Advantages and Disadvantages of mergers and acquisition”. July 9, 2022.

18

Accessed October 25, 2022. https://www.ukessays.com/essays/economics/advantages-and-

disadvantages-of-mergers-and-acquisition-economics-e
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Merging two firms that are doing similar activities may mean duplication and over capability

within the company that may need retrenchments.

Increase in costs might result if the right management of modification and also the

implementation of the merger and acquisition dealing are delayed.

The uncertainty with respect to the approval of the merger by proper assurances.

In many events, the return of the share of the company that caused buyouts of other company

was less than the return of the sector as a whole.

The merger reduces flexibility. If a rival makes revolution and may currently market vital

resources those are of superior quality, shift is tough. The change expense is the major

distinction between the particular merger worth and also the merchandising value of the firm that

can be of larger distinction. 19

Motives and Reasons

The most common Reasons include the following:

1. Value creation

Two companies may undertake a merger to increase the wealth of their shareholders.

Generally, the consolidation of two businesses results in synergies that increase the value of a

newly created business entity. Essentially, synergy means that the value of a merged company

exceeds the sum of the values of two individual companies. Note that there are two types of

synergies:

. Christina Majaski. “Advantages and Disadvantages of Merger and acquisition”. July 9,

19

2021. Accessed October 21, 2022.https://www.ukessays.com/essays/economics/advantages-and-

disadvantages-of-mergers-and-acquisition-economics-e
 21

a) Revenue synergies: Synergies that primarily improve the company’s revenue-generating

ability. For example, market expansion, production diversification, and R&D activities are

only a few factors that can create revenue synergies.

b) Cost synergies: Synergies that reduce the company’s cost structure. Generally, a successful

merger may result in economies of scale, access to new technologies, and even elimination of

certain costs. All these events may improve the cost structure of a company.

2. Diversification

Mergers are frequently undertaken for diversification reasons. For example, a company

may use a merger to diversify its business operations by entering into new markets or offering

new products or services. Additionally, it is common that the managers of a company may

arrange a merger deal to diversify risks relating to the company’s operations.

3. Acquisition of assets

A merger can be motivated by a desire to acquire certain assets that cannot be obtained

using other methods. In transactions, it is quite common that some companies arrange mergers to

gain access to assets that are unique or to assets that usually take a long time to develop

internally. For example, access to new technologies is a frequent objective in many mergers.20

4. Increase in financial capacity

Every company faces a maximum financial capacity to finance its operations through

either debt or equity markets. Lacking adequate financial capacity, a company may merge with

20
. CFI Team. “Motives and Reasons”. May 1, 2022. Accessed October 25, 2022.
https://corporatefinanceinstitute.com/resources/knowledge/deals/motives-for-mergers/
 22

another. As a result, a consolidated entity will secure a higher financial capacity that can be

employed in further business development processes.

5. Tax purposes

If a company generates significant taxable income, it can merge with a company with

substantial carry forward tax losses. After the merger, the total tax liability of the consolidated

company will be much lower than the tax liability of the independent company.21

Case Laws Related to Mergers (India)

Court of Appeal Amsterdam, 27 February 2014

Case number 200.138.560/01 OK

Works Councils Act proceedings: The Company could not reasonably come to the

contested decision to participate in the hospital concerned, taking into account all interests. The

Enterprise Division of the Amsterdam Court of Appeal concurs with the position of the works

council that the company has not taken adequate care of the fulfilment of the ‘risk mitigating’

conditions that were agreed in writing. The Enterprise Chamber judges that the company must

revoke the decision and nullify all consequences thereof. Furthermore it prohibits any actions

regarding the (further) implementation of the decision or parts thereof.

The works council of the company has requested the Enterprise Chamber to declare that

the company could not reasonably come to the decision to participate in the hospital, to order the

. Mariam van. “Mergers and acquisition” February 05, 2017. Accessed October 27,
21

2022.https://www.evershedssutherland.com/global/en/where/europe/netherlands/services/
mergers-and-acquisitions/cas
 23

company to withdraw this decision, to nullify all consequences thereof and to prohibit the

company from any actions to further implement the decision.

The Enterprise Chamber states that in principle, the decision of the company to

participate in a different healthcare business is a business decision of the company.

However, the company must take into consideration the various interests of the

enterprise and its stakeholders, amongst whom the employees, and balance the reasons for the

intended participation and the consequences thereof.

 This means that the company should not only take into account the conditions under

which the company will participate but also the (other) circumstances in which the

investment/participation will be effectuated.22

The Enterprise Chamber rules that the company could come to the conclusion that the

reasonable foreseeable risks for the company were not of such magnitude that the company

should decide not to participate. However, the Enterprise Chamber concurs with the position of

the works council that the company has not taken adequate care of the fulfilment of the ‘risk

mitigating’ conditions that were agreed in writing. When the company made its definite decision

to participate in the hospital, various conditions were not fulfilled and were (apparently) wilfully

left unfulfilled.

Furthermore, various arrangements had not been laid down in writing yet. The company

states that (oral) commitments exist. The Enterprise Chamber finds the conduct of the company

. Mariam van. “Mergers and acquisition” February 05, 2017. Accessed October 27,
22

2022.https://www.evershedssutherland.com/global/en/where/europe/netherlands/services/
mergers-and-acquisitions/cas
 24

irresponsible; given the identified risks, it cannot be accepted that the fulfilment of certain

conditions (precedent) of the transaction are disregarded.

After taking into account the interests involved, the company could not reasonably come

to the contested decision to participate. The Enterprise Chamber judges that the company must

revoke the decision and nullify all consequences thereof. Furthermore, it prohibits any actions

regarding the (further) implementation of the decision or parts thereof.23

District Court Amsterdam

Date: 10 July 2013

Date publication: 1 October 2013

Case number: C/13/518487 / HA ZA 12-676

Sale of subsidiary – Sale without approval of the general meeting of shareholders (as

prescribed by the articles of association) does not constitute serious mismanagement pursuant to

section 2:9 Dutch Civil Code. Further, the claimant in his capacity of shareholder can also not

invoke a breach of the articles of association. The principles of reasonableness and fairness make

such claim inadmissible.

One of the two directors of the company had decided to sell all shares held by the

company in a subsidiary. Pursuant to the articles of association of the selling company, such sale

requires prior approval by the general meeting of shareholders of the seller. The transaction was

effected without such prior shareholders’ approval.

. Mariam van. “Mergers and acquisition” February 05, 2017. Accessed October 27,
23

2022.https://www.evershedssutherland.com/global/en/where/europe/netherlands/services/
mergers-and-acquisitions/cas
 25

The other director (claimant) claimed damages on the basis of section 2:9 DCC on behalf

of the company.  In principle, a breach of the articles of association does constitute serious

mismanagement. When determining whether or not specific conduct can be qualified as serious

mismanagement, all circumstances of the matter are to be considered. Based on the following

circumstances, the court considered that there is no serious culpability: (i) the whole group of

companies was indirectly management by two persons; the claimant and the defendant jointly,

(ii) the claimant barely shown any interest in the participation which was transferred, (iii) the

claimant previously approved the sale of another subsidiary, (iv) it did not appear that the

director in question had intentionally not consulted the claimant in respect of the disputed sale

and (v) the shares were sold at nominal value.

Subsequently the question was answered as to whether the conduct of the director could

constitute a wrongful act (tort) towards the claimant in his capacity as shareholder. Although the

shareholders’ approval as prescribed by the articles of association does serve to protect the

shareholder’s interest, the principles of reasonableness and fairness determine that it would be

unacceptable that the claimant in his capacity of shareholder in the given circumstances could

successfully invoke breach of the articles of association. Therefore the court had also concluded

that the director was not liable on the basis of a tort.24

The court’s reasoning is not new, but confirms the current line of ruling.

Aruna Dixit D/o Late Y. D. Dixit v State of Chhattisgarh, (Case)

. Mariam van. “Mergers and acquisition” February 05, 2017. Accessed October 27,
24

2022.https://www.evershedssutherland.com/global/en/where/europe/netherlands/services/
mergers-and-acquisitions/cas
 26

Through Chief Secretary, Chhattisgarh and others [3], a bank was registered under

Chhattisgarh Cooperative Societies Act, 1960. On committing defaults and mismanagement,

Board of Directors of Bank was superseded. Authorized officer convened annual general

meeting of shareholders of Bank and resolution was passed for amalgamation of Bank with

another Bank despite objection raised by shareholders of Bank including petitioner.

Registrar sent proposal of amalgamation for approval by Reserve Bank of India wherein

RBI issued statutory No Objection Certificate. Registrar, Cooperative Societies passed order

directing merger of Bank. Petitioner was filed appeal before State Government to set aside

Registrar's order. Whether respondents have violated provisions of s.16 of the Act and r.11 of the

Rules, and such noncompliance of provisions has vitiated entire exercise.

The court held that order dt.2-1-2010 clearly mentions that order of supersession passed

on 13-9-2006 is extended for another one year on 12-9-2007, however, since situation has not

changed, order of supersession requires to be continued and extended for further one year.25

Thus, order nowhere ratifies working of authorized officer during 12-9-2008 till 2-1-2010

includes date i.e.7-11-2009 when annual general meeting of members of Bank is convened by

authorizes officer. Apparently, officer is not authorized on that day to convene annual general

meeting of Bank because, there is no order in existence, even ex post facto order approving his

appointment as authorized officer during period of 12-9-2008 till 2-1-2010. Hence, order dt.18-

1-2011 and subsequent actions taken by respondents is quashed.

. Associate Lawyers in India. “Case laws related to mergers and acquisition”. November
25

09, 2020. Accessed October 21, 2022. https://www.legalserviceindia.com/legal/article-2827-

case-laws-related-to-mergers-and-acquisitions-of-banking-
 27

Narayan Dogra Shetty vs Ramchandra Shivram Hingne on 10 December, 1962

Equivalent citations: (1963) 65 BOMLR 449

1. The plaintiffs, who had purchased the equity of redemption in 6 of the 'khans'

comprising a house, filed a suit for possession of the 6 'khans', on the ground that the mortgage

which was created by their vendor in favour of the defendants, was satisfied out of the usufruct

of the property at the end of ten years of its duration. The defendants contended that they were

lessees of those 6 'khans' under a rent note dated August 6, 1946 for a period of 3 years, that the

lease was suspended during the pendency of the mortgage, that on the expiry of the period of ten

years of the mortgage the lease was revived for the rest of its term and that, therefore, the

plaintiffs were not entitled to the possession of those premises. On the construction of both the

mortgage deed as well as the rent note, the trial Court came to the conclusion that defendant No.

1 had surrendered his lease on the execution of the mortgage in favour of both the defendants

and that, therefore, the defendants were liable to return the possession of the 6 'khans' to the

plaintiffs. The plaintiffs' suit was accordingly decreed and the defendants were ordered to deliver

possession of the premises to them against that decree the defendants took an appeal to the

District Court and the learned Extra Assistant Judge, who heard that appeal, concurred in the

decision of the trial Court and dismissed the appeal. The defendants have now come to this Court

by this second appeal.26

2. In support of this appeal, it was urged by Mr. Kotwal, Junior, that there possibly could

not be any merger of the interests of a lessee with the interests of a mortgagee and therefore, both

. Shah “Naryan Dogra Shetty vs Ramchandra Shivram Hingne” December 10, 1962. Accessed
26

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 28

the Courts below were in error in observing that the lease in the present case had merged with the

mortgage. He further urged that the two Courts were also in error in holding that there was a

surrender of the lease on the part of defendant No. 1 on the execution of the mortgage. In support

of the latter contention Mr. Kotwal relied upon the decision in Kallu v. Diwan (1902) I.L.R. 24

All. 487. On the other hand, Mr. Marathe, the learned advocate for the plaintiffs, contended that

the decision of both the lower Courts was perfectly justified on the construction, both of the rent

note as well as the mortgage deed. He submitted that apart from the question of merger,

defendant No. 1 had surrendered his lease on account of the fact that the amount of the deposit of

Rs. 90 which was made by defendant No. 1 under the rent note, was taken into account while

computing the consideration of Rs. 2,500 in the mortgage and that by the terms of the mortgage,

it was specifically provided that the mortgagees shall deliver possession of the mortgaged

premises to the mortgagor on the expiry of the period of 10 years. Mr. Marathe relied upon

Meenakshi Amma v. K.V. Narayani and Sardarilal v. Ramlal in support of his contention.27

3. Now, it appears to me that since defendant No. 1 alone had taken the lease of the

premises, he had to surrender and did, in fact, surrender his lease at the time of the execution of

the mortgage in favour both of himself and defendant No. 2 jointly. It may be remembered that

the lease was only for a period of 3 years, whereas the mortgage was to run for a period of 10

years, during which time the mortgagees by the terms of the mortgage deed had themselves to be

in possession of the premises and at the end of the period, they had to deliver the possession

thereof to the mortgagor. There cannot be any question of merger in this case. For a merger to

arise, it is necessary that a lesser estate and a higher estate should merge in one person at one and

the same time and in the same right and no interest in the property should remain outstanding. In

. Shah “Naryan Dogra Shetty vs Ramchandra Shivram Hingne” December 10, 1962.
27

Accessed October 13, 2022. https://indiankanoon.org/doc/521307/

 29

the case of a lease, the, estate that is outstanding in the lessor is the reversion. In the case of a,

mortgage, the estate that is outstanding is the equity of redemption of the mortgagor.

Accordingly, there cannot possibly be a merger of a lease and a mortgage in respect of the same

property since neither of them is a higher or lesser estate than the other. Even if the rights of the

lessee and the rights of the mortgagee in respect of a property were to be united in one person,

the reversion, in regard to the lease and the equity of redemption in regard to the mortgage,

would be outstanding in the owner of the property and accordingly, there would not be a

complete fusion of all the rights of ownership in one person. Such fusion of rights occurs when

the rights of a lessee and those of the lessor or the rights of a mortgagee and those of the

mortgagor vest in one person in the same right, and then one can say that the lesser estate of the

lessee or of the mortgagee has merged in the higher estate of the lessor or of the mortgagor, as

the case may be, and a merger in law has taken place. In the present case, however, it was only

defendant No. 1 who had taken the lease of the property and the mortgage was executed in

favour of both the defendants. Unless and until, therefore, some arrangement of which there is no

evidence, was made by which the lease became the joint property of both the defendants, it could

not possibly be urged that there was any fusion of the lessees' estate and the mortgagees' estate in

both of them jointly even if such fusion was permissible in law. Besides, the mortgage was one

and indivisible and it was executed in favour of both the defendants jointly. If, on the expiry of

the period of 10 years of the mortgage, both the mortgagees undertook, which in fact they did, by

a specific term in the mortgage deed to deliver possession of the property to the mortgagor, I am

afraid, one of them who was a lessee prior to the execution of the mortgage, could not possibly

insist upon retaining the possession of the property on the ground that he was a lessee of the

property prior to the execution of the mortgage and that his lease had revived on the expiration of
 30

the period of the mortgage. Considering the case from this point of view, it may not be even

necessary to consider the question of surrender of the lease by defendant No. 1 since both the

defendants are inextricably bound by the provisions contained in the mortgage deed. Besides, as

pointed out by Mr. Marathe, defendant No. 1 who was the only lessee of the premises in

question, had allowed his deposit of Rs. 90 under the lease, to be given credit for in the mortgage

amount of Rs. 2,500. In other words, both the defendants, instead of paying the full consideration

of Rs. 2,500 for the mortgage, only paid Rs. 2,410 and thereby defendant No. 1 necessarily

relinquished his rights under the lease and undertook to abide by the terms of the mortgage. Of

course, there is no specific writing on the part of defendant No. 1 to show that he had

surrendered his lease, but his very conduct in regard to the deposit made by him under the lease,

unequivocally shows that he had no intention to allow the lease to subsist any longer. In my

opinion, therefore, although there was no merger and there could not possibly be any merger of

defendant No. l's estate as a lessee and the estate of both the defendants as mortgagees, there was

undoubtedly an implied surrender of his lease by defendant No. 1, simultaneously with the

execution of the mortgage of the demised premises in favour of both the defendants.28

4. The reference by Mr. Kotwal to Kallu's case, in my opinion, is of no avail to him in the

circumstances of the present case. It was held in that case that the fact of a tenant taking a

mortgage of land comprised in his holding from his landlord did not of itself extinguish the

tenancy by merging the rights of the tenant in those of the mortgagee, that the effect of such a

mortgage on the tenant's rights would merely be that they would be in abeyance, and that when

the landlord redeemed the mortgage, the parties would revert to their former position and the

landlord would not be entitled to get possession of the land except by ejecting the tenant in due

. Shah “Naryan Dogra Shetty vs Ramchandra Shivram Hingne” December 10, 1962. Accessed
28

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 31

course of law. That there could not be a merger of the lessee's rights with those of the mortgagee

in the same person, has been already explained by me in the earlier part of the judgment, and,

with respect, I agree with the view expressed by the learned Judges in that behalf in that case.

That case, however, is clearly distinguishable from the one before me on facts since the learned

Judges nowhere in their judgments appear to have discussed the question of implied surrender of

the tenancy in, the light of any express provision in the mortgage deed requiring the tenant-

mortgagee to deliver possession of the land to the mortgagor on redemption of the mortgage or

otherwise indicating that the tenancy was no longer intended to subsist. The decisions relied

upon by Mr. Marathe, on the other hand, are, with respect, correct, so far as they held that on the

terms of the mortgage deed in each case, there was implied surrender of the lease, but with

respect again, I am unable to agree with the observations of the learned Judges in the two cases

that the lessee's estate being the lesser one had merged with the mortgagee's higher estate. As

indicated above, there could not possibly be any merger of these estates in law. 29 Truly speaking,

the interest of a lessee and that of a mortgagee in reference to the same property are co-ordinate

and can exist together as in the case of a lease for a period, of ten years and a simple mortgage of

the same property for the same period. The lessee in such a case can continue in enjoyment of

the property and he may yet have a sufficient security in that property as a mortgagee for the

repayment of the money advanced by him to the owner of that property. In order to extinguish

the rights of the lessee there must either be express provision in the mortgage deed to that effect

. Associate Lawyers in India. “Case laws related to mergers and acquisition”. November
29

09, 2020. Accessed October 21, 2022. https://www.legalserviceindia.com/legal/article-2827-

case-laws-related-to-mergers-and-acquisitions-of-banking-
 32

or some such provision which would be inconsistent with the continuance or subsistence of the

lease.

5. In the present case, in my opinion, the decision of both the Courts below that defendant

No. 1 had, by his conduct, surrendered the lease of the premises in question, at the time of taking

the mortgage of the same premises along with defendant No. 2, and was perfectly right and I see

no reason to interfere therewith.

6. In the result, the appeal fails and is dismissed with costs.

1. Pakistani laws

The review of mergers and acquisitions of shares or assets, including joint ventures,

Competition Act functions and responsibilities of the Mergers and Acquisitions Department. To

assist undertakings contemplating a merger or acquisition that desire to get an informal and non-

binding view of the Commission, the department operates the Acquisitions and Mergers

Facilitation Office (AMFO), which plays an advisory role

Mergers and Acquisitions in Pakistan

Following are the most important laws and regulation that govern mergers and

acquisitions in Pakistan 30

1. The Competition (Merger Control) Regulation, 2007

2. Listed Companies (Substantial Acquisition of Voting Shares and Take Overs) Ordinance,

2002.

Khalid Zafar and Associates “Mergers and Acquisitions in Pakistan”. December 16,
30

2020. Accessed October 17, 2022. https://khalidzafar.com/mergers-and-acquisitions-in-pakistan/

 33

3. Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations,

2008

4. The Competition Act, 2010

5. Companies Act, 2017.

1. Regulation, 2007

The concerned undertaking must seek a clearance from the Competition Commission.

2. Regulations, 2008.

The Listed Companies (Substantial Acquisition of Voting Shares and Takeovers)

Regulations, 2008 (the “Takeover Regulations”) contain detailed provisions in relation to

acquisition of shares of listed companies.

Where an acquirer intends to acquire more than 25 percent of the voting shares or control

of the listed undertaking the acquirer is compulsorily required by the Takeover Ordinance to

make a public announcement of offer to acquire at least 50% of the remaining voting shares of

the company to be acquired. A few types of transactions are exempt from making public offer

e.g. acquisition of shares through a scheme of financial institution does not require the acquirer

to make a public offer.31

ZAFAR & ASSOCIATES “ANTITRUST OR COMPETITION LAW – PAKISTAN”.

31

September 11, 2021. Accessed October 30, 2022. https://zallp.com/practice/competition_law/

 34

3. The Competition Act, 2010

The Competition Act, 2010 provides that where an undertaking intends to acquire shares

or assets of another undertaking; or two or more undertakings intend to merge the whole or part

of the business of one undertaking and meet the premerger thresholds prescribed in the

Competition (Merger Control). The procedure adopted by the department for examining the

application and issuance of a “No objection certificate (NOC)” is detailed in the guidelines on

merger. The Act gives 30 days for the completing the first phase review and 90 days if the matter

requires a detailed second phase review. Competition Act 2010 Article 2(h) defines Merger and

Article 11 explains approval of merger.32

Article 2. Definitions. -

(h) "merger" means the merger, acquisition, amalgamation, combination or joining of two

or more undertakings or part thereof into an existing undertaking or to form a new undertaking;

and expression "merge" means to merge, acquire, amalgamate, combine or join, as the context

may require;

Article 11. Approval of mergers. -

(1) No undertaking shall enter into a merger which substantially lessens competition by

creating or strengthening a dominant position in the relevant market

(2) Notwithstanding the provisions contained in the Ordinance where an undertaking,

intends to acquire the shares or assets of another undertaking, or two or more undertakings intend

to merge the whole or part of their businesses, and meet the pre-merger notification thresholds,

. “The Competition Ordinance, 2010.” Ordinance No. XVI of 2010, 6-8 Accessed
32

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 35

stipulated in regulations prescribed by the Commission, such undertaking or undertakings shall

apply for clearance from the Commission of the intended merger.

(3) The concerned undertakings shall submit a pre-merger application to the Commission

as soon as they agree in principle or sign a non-binding letter of intent to proceed with the

merger.

(4) Application referred to in subsection (3) shall be in the form and accompanied by a

processing fee as may be prescribed by the Commission. The concerned undertakings shall not

proceed with the intended merger until they have received clearance from the Commission.

(5) The Commission shall by way of an order refer to in section 31, decide on whether

the intended merger meets the thresholds and the presumption of dominance as determined in

section 3. Such order shall be made within thirty days of receipt of the application.

(6) If so determined, the Commission shall initiate a second phase review and for that

purpose the Commission may require the concerned undertakings to provide such information, as

it considers necessary to enable the Commission to make the necessary determination.

(7) Failure to make a determination within the prescribed period of thirty days for 'the

first phase review shall mean that the Commission has no objection to the intended merger.33

(8) On initiation of the second phase review the Commission shall, within ninety days of

receipt of the requested information under subsection (6), review the merger to, assess whether it

substantially lessens competition by creating or strengthening a dominant position in the relevant

. “The Competition Ordinance, 2010.” Ordinance No. XVI of 2010, 6-8 Accessed
33

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 36

market, and shall give its decision on the proposed transaction. In case concerned undertakings

fail to provide the information requested, the Commission may reject the application.34

(9) Failure to render a decision within ninety days shall be deemed to mean that the

Commission has no objection to the intended merger.

(10) If after the second phase review, the Commission determine that the intended merger

substantially lessens competition by creating or strengthening a dominant position, it may

nonetheless approve the transaction, if it is shown that,--

(a) It contributes substantially to the efficiency of the production or distribution of goods

or to the provision of services;

(b) Such efficiency could not reasonably have been achieved by a less restrictive means

of competition;

(c) The benefits of such efficiency clearly outweigh the adverse effect of the absence or

lessening of competition; or

(d) It is the least anti-competitive option for the failing undertaking's assets, when one of

the undertakings is faced with actual or imminent financial, failure: Provided that the burden of

proof shall lie with the undertaking seeking the approval

(11) In case the Commission determines that the transaction under review does not

qualify the criteria specified in subsection (10), the Commission may—

(a) Prohibit the consummation of the transaction;

(b) Approve such transaction subject to the conditions laid by the Commission in its

order; or.

. “The Competition Ordinance, 2010.” Ordinance No. XVI of 2010, 6-8 Accessed
34

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 37

(c) Approve such transaction on the condition that the said undertakings enter not legally

enforceable agreements specified by the Commission in its order.35

(12) Where an undertaking has consummated the merger without complying with the

provisions of subsection (1) to subsection.(4), the Commission shall, after giving the undertaking

an opportunity of being heard, make appropriate orders under section 31.

(13) Where the Commission has granted approval subject to conditions, the Commission

may, within one year, review the order of approval of merger on its own or on the application of

the undertakings concerned on the ground that it is satisfied that the circumstances of the

relevant market or the undertakings have so changed as to warrant review of the conditions

imposed.

(14) If the Commission determines that the approval was based on false or misleading

information submitted by the undertaking, or the conditions prescribed in the relevant orders of

the Commission} have not been fully complied with, the Commission may after affording the

undertakings concerned an opportunity of being heard,--

(a) Undo such merger or acquisition; or

(b) Prescribe modifications or additions in the original order.

4. Companies Act, 2017

. “The Competition Ordinance, 2010.” Ordinance No. XVI of 2010, 6-8 Accessed
35

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 38

The Companies Act, 2017 deals with the schemes of arrangements for mergers or

demergers. A compromise or arrangement with creditors and members in case of merging

company are required to be sanctioned by the Securities and Exchange Commission of Pakistan.

The relevant sections of Companies Act, 2017 dealing with scheme of arrangements and its

sanctioning requirement are 279 to 282.These provisions inter.alia allow one or more companies

to enter into compromise agreements/arrangements with its members or creditors in respect of a

merger or demerger of the concerned companies. The scheme of arrangement lays out the

particulars including issues of assets/property, liabilities and debts of the companies, share swaps

ratios etc. the continuation of any legal proceedings and dissolution without winding up of one or

more of the concerned entities. 36

5. Industry Specific Rules/Regulation/Laws in respect of Mergers and

Acquisition.

There are certain industry specific regulations in respect of mergers and acquisitions as

given below:

 Nonbanking Finance Companies:

Amalgamation of nonbanking finance companies (“NBFCs”) are subject to approval by

the Securities and Exchange Commission of Pakistan under section 282(L)(4) of the Companies

Ordinance, 1984 (“Ordinance”).  By way of comment it is stated that sections 282A to 282N of

the Companies Ordinance, 1984 have not been repealed by Companies Act, 2017 and NBFCs are

still dealt with under the Ordinance. Furthermore, unlike the general provisions where a majority

. Khalid Zafar and Associates. “Mergers and Acquisitions in Pakistan” March 19, 2017.
36

Accessed October 22, 2022. https://khalidzafar.com/mergers-and-acquisitions-in-pakistan/

 39

representing 75% of the value of shares present at the meeting must approve of the merger, for

the mergers of NBFCs, a majority representing two thirds in value of the shareholders of each

NBFC, present either in person or by proxy, must approve of the scheme.

 Banking Companies:

  Merger and acquisition of banking companies would also be governed by the Banking

Companies Ordinance 1962 (“Ordinance”). Under the Ordinance, the State Bank of Pakistan

regulates shares acquisitions of banking companies. For instance, in order to hold more than 5%

of the voting shares in a banking company, the approval of State Bank of Pakistan is required

Theories of mergers

There are several theories that discuss the reasons behind mergers. Some of these theories

have been enumerated below:

1. Efficiency theory(Synergy theory)

Mergers occur so that the merging entities can generate synergy and make mutual profits.

Firms merge because the value of the combined firm is greater than the sum of the values of the

individual firms. 37

Operating synergies occur when a merger between two firms reduces the average cost

of production Financial synergies occur when a merger between two companies reduces the

average cost of financing the firms ‘activities.

Tax gains: If the bidding firm is profitable but the target firm is making a loss then the total tax

bill of the two firms can be reduced by combining.

37
Dr. C.-G. Malmström. “Understanding Mergers & Acquisition Financial Decision
Making”. 10-16. Accessed October 15, 2022.
http://accioneduca.org/admin/archivos/clases/material/mergers-and-acquisition_1564415367.pdf
 40

2. Monopoly theory

Mergers occur so that the entities can increase their market power and create a monopoly

in their respective industry.

3. Disturbance theory

Mergers occur because of external disturbances like fall or rise in economy, loss due to

natural disasters etc. The entities that remain unaffected by these factors merge with the affected

entities to increase their market share.38

4. Diversification theory

Mergers occur because entities want to diversify into different markets to avoid losses

and for generating capital from different markets. Firms merge to reduce business risk. The

diversification theory says that firms merge to reduce business risk through diversification of the

firms ‘activities. This would be particularly true of conglomerate mergers.

If the bidding firm and the target firm are in different industries, whose business cycles

are not highly correlated, then by combining, the firms will reduce the;

a) reduce the risk to the shareholders

b) Reduce Earnings variability

c) Increase shareholder value

5. Strategic alignment theory

Mergers occur so that entities can adapt to changing technologies and business

environments. Now that we have understood the primary reasons behind mergers, let us move on

to understand the different types of mergers.

6. Undervaluation theory

38
. Akash Krishan. “Analysis of types of Mergers.” December 15, 2021. Accessed October 25,
2022. https://blog.ipleaders.in/analysis-types-mergers/
 41

Firms merge because one firm is undervalued. The Undervaluation Theory. It relies on

the assumption that the market is inefficient. The market price of the target company does not

reflect the present value of its expected future cash flows. Once it has bought the target firm, the

bidding firm can either hold on to it, reaping an excess return on its investment, or it can re-sell

it. Sometimes the bidding firm will split the target firm up into its component divisions and sell

these separately. This is known as asset stripping

7. Agency theory

Firms merge to resolve the conflicts between shareholders and managers .When the

managers of a firm do not have a significant ownership interest in the firm, they may act in such

a way that reduces the value of the firm. Managers will strive to increase their remuneration and

perquisites, such as luxury offices and company cars.39

8. Market power theory

Firms merge in order to increase market share and hence profit. By increasing market

share, firms again control monopoly, and are consequently able to charge higher prices .In most

countries there are legal restriction, however, on increasing monopoly power. The authorities

will usually allow a merger only if it does not lead to a significant increase in monopoly power.

Competition Commission: EU, USA40

9. Growth theory

39
Dr. C.-G. Malmström. “Understanding Mergers & Acquisition Financial Decision
Making”. 10-16. Accessed October 15, 2022.
http://accioneduca.org/admin/archivos/clases/material/mergers-and-acquisition_1564415367.pdf
40
. Akash Krishan. “Analysis of types of Mergers.” December 15, 2021. Accessed October 25,
2022. https://blog.ipleaders.in/analysis-types-mergers/
 42

Firms merge to increase earnings growth .That is earning of two is lesser but when they

merge their combined earning is more than sum of their individual earning.

The Growth Theory: g (AB) < g (A) + g (B).

Comparison:

India, Pakistan and Bangladesh are the three dominant countries in South Asia. Together,

these three countries have about one fifth of the world’s population. Economies of the three

countries continue to grow, these countries have also become important destinations for foreign

direct investment (FDI). Mergers and acquisition (M&A) activities in these three countries have

expanded significantly in recent years.

India:

Statistic:

In India, it was the government agencies and the financial institutions that arranged M&A

within the framework of a regulated regime during the initial period of M&A transactions many

authors have also reviewed various aspects of M&A in India (Pawaskar, 2001; Joshi, 2008;

Nayyar, 2008; Prasad, 2007). Pawaskar (2001) studied the impact of mergers on corporate

performance in India using 36 cases of mergers between 1992 and 1995. He discovered that

those mergers seemed to lead to financial synergies and a one-time revenue growth. However,

there was no increase in post-merger profits. Joshi (2008) explained the laws and regulations

concerning M&A in India including Sections 391-394 of the Companies Act of 1956 and the

Income Tax Act of 1961.Target firms from India accounted for 83.1 percent of the deals and 74

percent of the M&A transaction value during the 2000-2009 period.

 43

Laws Regulating Merger

Following are the laws that regulate the merger of the company:-

1. Competition Act, 2002

(Competition Act) is the principal legislation that regulates combinations (mergers and

acquisitions) in India. Sections 5 and 6 of the Competition Act, which deal with the regulation of

mergers and acquisitions, have been in force since 1 June 2011.The merger control regime is also

governed by various notifications issued by the Ministry of Corporate Affairs, Government of

India (MCA) and the Competition Commission of India (Procedure in regard to the transaction

of business relating to combinations) Regulations, 2011 (as last amended on 30 October 2019)

(Combination Regulations).41

2. The Companies Act , 1956

Section 390 to 395 of Companies Act, 1956 deal with arrangements, amalgamations, mergers

and the procedure to be followed for getting the arrangement, compromise or the scheme of

amalgamation approved Foreign Exchange Management Act,1999

3. SEBI Takeover Code 1994

SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15%

up to 55%, provided the acquirer does not acquire more than 5% of shares or voting rights of the

41
. Rogers Y.W Tang and Ali M.Metwali. “Mergers and acquisition in India, Pakistan and
Bangladesh”. June 1, 2022. Accessed October 27, 2022
https://www.emerald.com/insight/content/doi
 44

target company in any financial year. [Regulation 11(1) of the SEBI Takeover Regulations]

However, acquisition of shares or voting rights beyond 26% would apparently attract the

notification procedure under the Act.

4. The Indian Income Tax Act (ITA), 1961

Merger has not been defined under the ITA but has been covered under the term

'amalgamation' as defined in section 2(1B) of the Act.

5. Mandatory permission by the courts

Any scheme for mergers has to be sanctioned by the courts of the country. The high

courts can also supervise any arrangements or modifications in the arrangements after having

sanctioned the scheme of mergers as per the section 392 of the Company Act.42

Regulatory Authority

The Competition Commission of India (CCI) is the regulatory authority responsible for

reviewing and assessing mergers and acquisitions 43

 EXAMPLE:

Zee Entertainment – Sony India Merger

42
. Divi Dutta, Mohana Thakkur. “India Mergers and Aqcuisitions in India- Abrief
overview”. July 12, 2022. Accessed 20, October, 2022.
https://www.mondaq.com/india/corporate-and-company-law/1210798/mergers-and-acquisitions-
in-india-a-brief-overview

. Prabhanshu. “Laws Regulating Mergers And Acquisition In India” May 3, 2000.

43

Accessed October 28, 2022. https://www.legalserviceindia.com/article/l463-Laws-Regulating-

Mergers-&-Acquisition-In-India.html
 45

Two of India's largest media companies, Zee Entertainment Enterprises Limited and

Sony Pictures Networks India, have agreed to a multibillion-dollar merger. Both companies are

expected to benefit from the merged entity and the synergies produced between them, which will

not only accelerate business growth but will also allow shareholders to participate in its future

success.

PAKISTAN:

Statistic:

M&A with target firms from Pakistan only accounted for 1.9 percent of the deals and 3.9

percent of the M&A value. M&A transactions in Pakistan have the highest average value per

deal ($154 million) followed by Bangladesh ($95 million) and India ($66 million).44

Laws Regulating Merger

Following are the most important laws and regulation that govern mergers and

acquisitions in Pakistan

1. The Competition (Merger Control) Regulation, 2007

2. Listed Companies (Substantial Acquisition of Voting Shares and Take

Overs) Ordinance, 2002.

3. Listed Companies (Substantial Acquisition of Voting Shares and

Takeovers) Regulations, 2008

4. The Competition Act, 2010

5. Companies Act, 2017.

Regulatory Authority

44
. Roger Y.W. Tang and Ali M. Metwalli “Mergers and acquisitions in India, Pakistan
and Bangladesh” April 29, 2013. 1-4. Accessed October 25, 2022
https://www.emerald.com/insight/content/doi/10.1108/IJCoMA-04-2013-0039/full/pdf
 46

The Competition Commission of Pakistan (CCP) is the regulatory authority responsible

for reviewing and assessing mergers and acquisitions  

 EXAMPLE:

1. NIB Bank Limited - (NIB) merge into MCB Bank Limited - (MCB) on 2017-08-01

2. Pakistan Slag Cement Industries Limited - (PKSLC) merge into Zeal Pak Cement Factory

Limited - (ZELP) on 2008-06-11

Conclusion
 47

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49