EXERCISE 1

1. a. Horizontal merger is a merger between companies selling

similar products in the same market and which are in direct

competition with each other. The companies in such a merger

are sharing the same product lines and markets.

Electrolux India Private Limited (hereinafter “EIPL”) and

Videocon Electronics Limited (hereinafter “VEL”) are both

engaged in the business of consumer electronics. EIPL and

VEL are in direct competition with each other. Therefore, a

merger between both of these entities would be a horizontal

merger.

b. A vertical merger is a merger between companies which are

in the same industry but at different stages of the production

process.

Bata India Limited (hereinafter “BIL”) is engaged in the shoe

selling business. It needs processed leather for the production

of shoes. Leather Giants Private Limited (hereinafter “LGPL”)

is in the business of processing, manufacturing and supplying

leather. Both BIL and LGPL are in same industry but different
stages of production process. Therefore, a merger between

these two entities would be a vertical merger.

c. Conglomerate merger is a merger between entities that

have no common business areas. It refers to a merger between

companies, operating in industries, unrelated to each other.

IOJ Telefilms Private Limited (hereinafter “ITPL”) is a company

engaged in the entertainment industry. Dhruva Advisors

Limited (hereinafter “DAL”) is an investment advisory

company providing various advisory to the individuals, HNIs

and companies. Clearly both ITPL and DAL are engaged in

businesses which are unrelated to each other. Therefore, a

merger between these two companies would be a

conglomerate merger.

2. A merger takes place between two entities keeping in mind

the long term growth objectives and goals of the merging

companies. Mind Global is engaged in the business of

developing and selling IT software. It wishes to acquire Spec

India which is a start-up engaged in AI business.

The pros of this merger would be:

 Mind Global’s acquisition of Spec India will lead to Mind

Global to grow in size as it will expand its market and

product range. Mind Global will not only be involved in

developing IT software but also AI technologies.

 Mind Global by buying a smaller company with unique

technologies, can maintain and develop a competitive edge.

 Mind Global would not have to start from scratch when it

comes to entering into the AI business. Instead it can

acquire patents, intellectual property and technologies from

Spec India which has already made inroads into developing

AI products and technologies.

 The acquisition of Spec India can increase business

intelligence of Mind Global. Mind Global can take the

advantage of experience and intelligence of the staff of Spec

India which has been involved in the business of developing

AI technologies.

 Acquisition of Spec India can also help Mind Global in

reducing costs. When two companies merge, they often no

longer need to rent two separate office spaces, for example.

They can combine marketing efforts to save money on

advertising and other forms of promotion. Depending on

 how the companies are restructured after the merger, it can

mean a reduction in the cost of staffing as redundant

positions are combined or otherwise eliminated. Reduced

costs can allow companies to reduce their prices which

benefits customers and allows the company to expand

further with increased competitive pricing.

Cons of Spec India’s merger into Mind Global:

 Mind Global may experience diseconomies of scale from the

increase in size, after acquisition of Spec India. Since the

two companies are involved in different businesses and

different technologies it may become difficult to gain the

synergy between two companies.

 Since the two companies are in different businesses there

may be a culture clash between the two. Culture clash can

be common after a merger, especially if the two businesses

have very different ways of managing employees or different

expectations when it comes to employee behaviour. This can

be addressed however by providing rigorous training

seminars to the new employees before they join Mind

Global, to get them acquainted with the work culture of new

company.
The advantages of this merger outweigh the disadvantages.

Thus, it is advisable for Mind Global to acquire Spec India in

this present scenario.

EXERCISE 2

a. SIGMA group needs to undertake a spin-off demerger to

separate its loss making IT undertaking from its other

businesses. SIGMA group would need to execute an agreement

under which its Cement company (hereinafter “Demerged

Company”) spins off its IT business undertaking into a

resulting company (hereinafter “Resulting Company”), formed

with another name in such a manner that all the property and

all the liabilities of the undertaking, being transferred by the

demerged company immediately before the demerger,

becomes the property and liabilities of the resulting company

by virtue of demerger. This is also known as partial demerger

where shareholders of demerging division are allotted shares

in the new company in the very same proportion as held by

them previously.
After the demerger of Resulting Company, SIGMA group can

sell off the Resulting Company to a willing buyer.

b. A merger is when two companies combine their assets and

join together to form one company, rather than remaining as

separately owned entities. In turn, a de-merger is a form of

corporate restructuring where a business is split up or broken

down into several individual companies, often with much more

specific or niche offerings. These companies can then either

operate as a separate entity to the parent company or be sold

off and merged into a third company.

Difference Between Merger/Amalgamation vs. Demerger in

Tabular Form

Parameter

s Of
Merger/Amalgamation Demerger
Compariso

Formation Two or more businesses A larger and

that have comparable more financially

operations or are in the powerful entity

same industry field join acquires a

 together to grow their

services or diversify their smaller one.

operations.

Amalgamation in

the form of a

Conglomeration, horizontal purchase and

Variations
and vertical. Amalgamation in

a merger are two

different things.

The purchasing

company's

identity is

Legal A merger creates a new preserved, while

Status entity. the acquired

company's

identity is

obliterated.

Holders of The shareholders of the The purchased

shares firms involved in the merger company's

 shareholders are

added to the

become shareholders in the acquiring

new organization. company's

existing

shareholders.

A demerger is a

Merger is a procedure in business

which two or more firms transaction in

Procedure combine their shares with which one firm

another company to form a shares part of its

single entity. assets with

another.

The Demerger is
In an merger, the
the process of
Division corporations are legally
separating a firm
merged into a single entity.
into two halves.

Titles The firm that merges is The demerged

known as the transferor, firm is the one

 that shares its
and the business that
rights, and the
receives all of the merged
new business is
company's assets is known
the one that
as the transferee.
takes the shares.

The prior firms cease to

exist after the merging Both companies'

Occurrenc
procedure, and only the existence is
e
combined corporation allowed.

remains.