Question

Company A Ltd and Company B Ltd are both liquidated after combining to form Company C Ltd. Discuss in detail how the acquirer would be identified in this situation and why it is important.

Answer 1

• The process in which two companies liquidate to create a new company, which takes over the business of the liquidating companies in well known as Amalgamation.
• Amalgamation can be of 2 categories :

1. Amalgamation in the nature of merger: Two company merges to form a new company.
2. Amalgamation in the nature of purchase: One company purchases another company

• In the given case, compay A & B gets liguidated to form Company C.This belongs to category 1 i.e., Amalgamation in the nature of merger.
• The transferor companies (Company A & B) lose their identity to form a new company (transferee company i.e., compamy C.)

Identification of Acquirer :

In this process, the companies which go into liquidation is known as Amalgamating Companies or Vendor Companies whereas the company which is newly formed is referred to as the Amalgamated Company or Vendee Company. This company is also called as Acquirer Company as it is acquiring the assets and liabilities of liquidating companies.

Generally, the liquidating companies are of the same nature and size, who mutually decide to wound up the company to form a separate legal entity with a new name. The company formed with new name can be identified as Acquirer Company, which may be Incorporated for Synergy benefit for continuing same nature of business with more resources and working capital and assets of both the liquidated companies.

Importance :

It is important to identify the acquirer company:

The transferee company i.e., The acquirer company has the right over the assets and liabilities of the transferor company.

Whereas there are cases like Mergers are rarely a true merger of equals. More often, one company indirectly purchases another company and allows the target company to call it a merger to maintain its reputation. When an acquisition occurs in this way, the purchasing company can acquire the target company using all stock, all cash, or a combination of both.

When a company acquires another company in an all-stock deal, equity is affected.

When this occurs, the parent company agrees to provide the shareholders of the target company a certain number of shares in the parent company for every share owned in the target company. In other words, if you owned 1,000 shares in the target company and the terms were for a 1:1 all-stock deal, you would receive 1,000 shares in the parent company. The equity of the parent company would change by the value of the shares provided to the shareholders of the target company. So it is important to identify the acquirer.

Advantages of merger

There are various advantages of merger i.e. synergy, expansion, reduction in competition, an increase in efficiency.

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