Companies enter into merger(s) to achieve economies of scale, increase their market share, gain technical know how, create their presence in new markets etc. If the entire process of Merger is not executed in a well planned manner the objective of entering into merger may get defeated. The process of Merger can be divided in two parts i.e. Pre Merger Obligations and Post Merger Obligations. Pre Merger Obligations are generally given more importance than post merger obligations, however, it needs to be understood that post merger obligations are equally important as the pre merger obligations and if they are not handled carefully then the merger may not achieve the desired results, resulting in loss of reputation of the merging entities and/or decline in shareholders net worth.
All the factors relating to post merger obligations such as estimated cost, expected timeframe, legal issues should be duly analyzed along with pre merger obligations by the merging entities before taking the final decision of merger. Post Merger Obligations can be divided into Administrative Acts and Statutory Compliances. The time frame and cost involved for the completion of Administrative Acts and Statutory Compliances depends upon size of the merging entities.
The statutory compliances with respect to merger can fall under the following enactments/authorities broadly:
- Companies Act, 1956
- SEBI Laws and Regulations (If any of the Merging Entity is a Listed Company)
Taxation Authorities such as
- Income Tax Department
- Central Excise Department
- Sales Tax/VAT Department
- Service Tax Department
- Foreign Exchange Management Act, 1999 (If there is involvement of Foreign Funds or there is a foreign Collaboration of the Merging Entity)
Apart from above, there are other compliances which a Company is required to carry out:
- To Pay Stamp Duty on the Order of the Court and other Agreements
- To follow up Pending Litigation Matters of the Transferor Company
- To Transfer Intellectual Property Rights such as Patents, Trademarks, Copyrights etc. of the Transferor Company in the name of Transferee Company
- To Modify the Contracts or Agreements executed between the Private Parties included Foreign entities and the merging entities, if required
- To make changes in the Letter Heads and Boards displaying the name of the company which are placed outside the Registered Office and Branches of the Transferee Company
- To get transferred the assets and liabilities of the Transferor Company in the name of Transferee Company
- If there are any Government Approvals or Licenses etc. in the name of merging entities then the respective Government authority or license issuing authority will have to be intimated about the merger.
There are a number of Administrative conducts which are required to be carried out to complete the Process of Merger, out of which some of the conducts are as follows:
- To reorganize the organization structure with regards to employees, as the employees of the Transferee Company will become a part of the Transferor Company and they will have to be suitably designated.
- To frame revised policy for the employees of the Transferor Company
- To inform the Bankers and Financial Institutions of the Transferor as well as the Transferee Company
- To restructure the insurance policies of the employees and insurance policy of assets of the Transferor Company
- To make necessary changes to the website of the Transferor Company and give new E-mail Ids to the Employees of the Transferor company
- To get the Pending Contracts/Orders in hand of the Transferee Company Executed
- To Change the Accounting Policies of the Transferor Company
- To inform the Clients, Customers, Debtors and Creditors of the Transferor Company
- To Make changes in the Internal management policies of the Transferor Company
The number of Administrative conducts and the Statutory Compliances which needs to be complied with, changes according to the nature of work and organization structure of the merging entities. Statutory Compliances should be followed in strict sense and should be completed as soon as possible so that the merged entity may not face any legal hurdle. Statutory Compliances also become a bit easy as the scheme of merger is approved by the Shareholders of the Company and the Hon’ble High Court. Administrative conducts should also be completed as soon as possible and extra care should be given especially with regards to the employees, clients and customers of the Transferor Company.
Employees of the Transferor Company become a part of the Transferee Company post merger, which involves a change in their work environment all together. It needs to be ensured by the Management of the Transferee Company that the Employees of the Transferor Company get the respect which they used to get earlier. If the employees are not satisfied with the new management they may leave the Company and such an act will not work in favor of the merged entity, as the employees are vital assets of the Transferor Company . Similarly post merger, the Clients and Customers of the Transferor Company should not have any complaints with regards to the service or the quality of products of the transferor Company.
Post Merger Obligations have an important role to play in order to achieve the desired results after merger. A careful Due Diligence of the Pre and Post Merger Obligations will help the merging entities to take an informed decision before entering into a merger. Also the execution of Post merger Obligations should ensure that they are carried out in time and with adequate care so that the merged entity achieves the desired results.