Merger and Acquisition Strategies

By Amaal Sheikh, B.A L.L.B, Hamdard Institute of Legal Studies and Research (HILSR), Jamia Hamdard University, New Delhi

A corporate identity is a term used for merger and acquisition of certain disjointed markets to elevate or raise their functional skills and to boost their competitive streak. 90% of the time merger and acquisition strategies are successful in elevating the proficiency of firms but on the uglier side of the corporate world, it can lead to monopolistic power. Either both the parties come together and work to achieve the desired profit or one party puts in more effort than the other.

Laws that govern merger and acquisition strategies in India:-

M & A laws are governed by the Indian Companies Act, 1956, under Sections 391 to 394. Though these acquisitions are carried out with mutual consent and agreement of the companies in talks, the procedure is primarily court driver. Sanction by High Court is thoroughly advisable and the proposal of any acquisition should be approved by 75% of the shareowners at the Board Meetings of the said firm.
Indian antagonism law allows a total of 210 days for firms to proceed with the process of acquisition. The time allotted differs widely from the stay period for claimants which is 210 days starting from the acknowledgment of the Commission’s order.
The entry limits are allotted keeping in mind the company’s annual income. The entry limits in India are high.
Merger and Acquisition laws in India also allow a merger between any Indian firms with international counterparts provided that the latter have their firm set up in India.

Provisions of merger and acquisition strategies and laws in India:-

Mergers/De-mergers, between two businesses, have to fulfil the prerequisites accompanying section 2(19AA) and section 2(1B), to qualify for the allocation concerning the provisions of tax allowances.
The capital profits of either Indian/Foreign firms, during the transfer of shares, are qualified for some tax exemptions under the Indian IT Tax Act.
If an Indian business takes ownership of the merger of two foreign companies, a new set of rules are then allotted. In that case, the share allocation of foreign firms is identified as transfer thus making them answerable under the Indian Tax Law.
The foreign earnings by an Indian based firm fall under ‘scope of income’ as mentioned in Section 5(1) of the Indian Income Tax Act.

Acquisition of Future Groups by RIL

After the mega-deal of Reliance Jio, The Reliance Industries Limited (RIL), India’s largest conglomerate acquired Kishor Biyani’s retail business of Future Group which was on the radar and anticipated by every business channels, investment gurus, stock market, etc. Reliance Retail Ventures Limited (RRVL) announced the acquisition of retail & wholesale and logistics & warehouse from Future Group under its subsidiary at a price rate of RD. 24,713 crores on a slump sale basis. As per section 2 (42C) of the Income-tax Act 1961, ‘slump sale’ means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. This was the easiest way for RIL to expand itself in the retail and wholesale business. This merger and acquisition strategies will help Reliance Retail take charge of one-third of the bricks-and-mortar stores of India’s modern retail territory.

Around 19 titles from the future group will be integrated into future enterprises ltd., while the logistics & warehouse, retail & wholesale will come under Reliance Group. This merger is based on the swap ratio which is a ratio at which the company that is acquiring, exchanges its shares with the target company’s shares. It can entail stock conversion described through the swap ratio.

To acquire 6.09% post-merger equity, Reliance Retail, and Fashion Lifestyle (RRFLL) is said to invest a total sum of RS. 1200 crore in the equity share of Future Enterprise Limited (FEL) and a further 7.05% after investing RS. 400 crore in equity warrant.

The vision behind acquiring the future group more or less is of twofold:

The assets, value, and loyal customers in the future group
RIL is looking into aggressively expanding its business into the retail sector. The current pandemic has pushed people to cut down on their impulses and buy readymade products online. RIL looking into E-Retail markets will only boost their business.

Already in competition with Amazon, Walmart, and Flipkart, Reliance had announced ‘Jio Mart’ earlier this year indirectly standing across their biggest competitor, Amazon, when it enabled WhatsApp payment after partnering with Facebook and other tech innovations. With future groups acquired, this has added a whole dimension to the Ambani-Bezos battle.

Adding 30% to the revenue base for the retail operations, Reliance Retail’s leadership position in the grocery and fashion segments goes on increasing. In a report published, JP Morgan states that “the strategic positives for Reliance here: scale and synergy benefits to adding to topline/earnings growth trajectory, leveraging the supply chain and retail infrastructure for a faster scale-up of the online Jio Mart platform/new commerce and access to good retail locations particularly in the Tier 1/Metro cities where Future had a strong presence.”

With a crippling economy, the deal is welcomed and will help millions of small merchants in midst of the pandemic.

References:

https://business.mapsofindia.com/finance/mergers-acquisitions/mergers-and-acquisitions-laws.html#:~:text=Laws%20governing%20Mergers%20and%20Acquisitions,under%20Sections%20391%20to%20394.&text=Indian%20antagonism%20law%20permits%20the,process%20of%20merger%20or%20acquisition.
https://www.goodreturns.in/news/future-group-bonds-company-stocks-surge-on-ril-deal-1163178.html
https://economictimes.indiatimes.com/industry/services/retail/reliances-acquisition-of-future-group-to-strengthen-its-retail-footprint-moodys/articleshow/77889050.cms?from=mdr
https://economictimes.indiatimes.com/industry/services/retail/reliance-almost-doubles-retail-footprint-with-acquisition-of-future-group/articleshow/77851708.cms?from=mdr
https://taxguru.in/finance/analysis-impacts-slump-sale-deal-reliance-future-group.html