:: Mergers & Acquisitions in Pakistan
The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. There are several different types of actions that a company can take when deciding to move forward using mergers and acquisitions. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board.
The fusion or absorption of one thing or right into another; generally spoken of a case where one of the subjects is of less dignity or importance than the other. Here the less important ceases to have an independent existence.
Merger according to Contract Law
The extinguishment of one contract by its absorption into another, and is largely a matter of intention of the parties.
Merger according to Corporations
The absorption of one company by another, latter retaining its own name and identity and acquiring assets, liabilities, franchises, and powers of former, and absorbed company ceasing to exist as separate business entity. It differs from a consolidation wherein all the corporations terminate their existence and become parties to a new one.
FORMS OF MERGER
Merger of corporations which are neither competitors nor potential or actual customers or suppliers of each other. One in which there are no economic relationships between the acquiring and the acquired firm. A pure conglomerate merger occurs when the two merging firms operate in unrelated markets having no functional economic relationship.
Merger between business competitors, such as manufacturers of the same type products or distributors selling competing products in the same market area.
Union with corporate customer or supplier.
Short Form Merger
A number of states provide special rules for the merger of a subsidiary corporation into its parent where the parent owns substantially all of the shares of the subsidiary. This is known as a “short-form” merger. Short-form mergers under such special statutes may generally be effected by: (a) adoption of a resolution of merger by the parent corporation (b) mailing a copy of the plan of merger to all shareholders of record of the subsidiary, and (c) filing the executed articles of merger with the secretary of state and his issuance of a certificate of merger. This type of merger is less expensive and time consuming than the normal type merger.
A provision in a contract to the effect that the written terms may not be varied by prior or oral agreements because all such agreements have been merged into the written document.
A merger is popularly understood to be fusion of two companies. It means two enterprises by or under the control of a body corporate ceasing to be distinct enterprises.
The Role of Merger in Modern Capitalism
A merger is a very important feature of modern capitalism. The history of modern big corporations is a clear testimony of the importance of mergers in the corporate world. They have played an important part in the growth of most of the leading corporations of the world. Statistics show that about two thirds of the large public corporations in the United States had a merger in their history and the top 200 corporations in the United States are reputed to own about half of the total corporate wealth of the U.S.A. Some of the giant corporations of the world have resulted from consolidation of smaller companies. Any assets of a body corporate which on a change in the control of the body corporate or any enterprise of it, are dealt with in the same way as assets appropriated to any such enterprise shall be treated as appropriated to that enterprise.
Merger of Companies
Companies Ordinance 1984 regulates the procedure for merger of two companies into one. Section 284 of the Companies Ordinance 1984 describes that a company could be merged / amalgamated into another company if:
Object of Merger
Object of merger is to achieve economy of scales and to carry on business more economically and efficiently, to streamline and maintain smooth and efficient management and corporate control, to cut unnecessary administrative, secretarial and other expenses, to attain the main objectives of both the petitioner-companies more feasibly, to avoid duplication of managerial and corporate process and to otherwise carry on business more conveniently and advantageously.
Procedure for Merger / Amalgamation of Non-Banking Finance Companies
Section 282-L of the Companies Ordinance, 1984 prescribes the procedure for amalgamation of Non Banking Finance Companies:
Methods of Merger
The act of becoming the owner of certain property; the act by which one acquires or procures the property in anything. Term refers especially to a material possession obtained by any means.
“Acquisition” is not a term of art and has, therefore, to be construed in its ordinary meaning, which covers in its ordinary meaning, in the context in which it is used, the acquiring of all kinds of rights or interests in land. It does not necessarily imply the acquiring of property rights though, when contrasting such acquisition with that of a lesser kind of rights such as requisition, acquisition is generally used to convey the obtaining of proprietary rights while requisition is confined to the mere taking of possession for a limited or unlimited period. But from this distinction it does not follow that they are entirely different concepts and cannot, therefore, be reasonably covered by the same expression. In decisions as well as statutes, the term acquisition has been used to include the temporary occupation.
“Acquisition” may be defined as a transaction or series of transactions whereby a person (individual, group of individuals or company) acquires control over the assets of a company, either directly by becoming the owner of those assets or indirectly by obtaining control of the management of the company. Where shares are closely held (held by a small number of persons), an acquisition will generally be effected by agreement with the holders of the whole of the share capital of the company being acquired. Where the shares are held by the public generally, the acquisition may be effected (a) by agreement between the acquirer and the controllers of the acquired company; (b) by purchases of shares on the stock exchange; (c) or by means of an acquisition bid.
FORMS OF ACQUISITION
Derivative acquisitions are those which are procured from others. Goods and chattels may change owners by act of law in the cases of forfeiture, succession, marriage, judgment, insolvency and intestacy; or by act of the parties, as by gift or sale.
Original acquisition is that by which a man secures a property in a shape which is not at the time he acquires it, and in its then existing condition, the property of any other individual. It may result from occupancy; accession; intellectual labor__ namely, for inventions, which are secured by patent rights; and for the authorship of books, maps, and charts, which is protected by copyrights.
An acquisition may result from the act of the party himself, or those who are in his power acting for him, as his children while minors.
Registration of charges on properties acquired subject to charge
According to Section 122 of the Companies Ordinance, 1984 where a company which has been registered in Pakistan acquires any property and creates a charge on that property then the property is required to be registered.
Procedure for registration of mortgage/charge etc. on acquisition
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