Seamless merger versus takeover
A seamless merger ensures that both the employees and shareholders of the amalgamating company continue to partake in the business as if nothing has happened.
S. Murlidharan
The takeover of the beleaguered Satyam Computer Services Ltd (Satyam) by Tech Mahindra with a 31 per cent preferential allotment in the latter’s favour has won almost universal acclaim with some pundits even gushingly hailing the rehabilitation route adopted as path-breaking and trend-setting in a country where scams have the nasty habit of surfacing every now and then.
They even wistfully wish that the earlier scams were similarly dealt with. Satyam, after all, has been operationally successful with a sound business model. Only it was done in by the cupidity of its disgraced promoter. Therefore, it should not have been allowed to go under is the refrain.
Efforts are on to rechristen Satyam, lest its name continues to cast a shadow even in the post takeover phase. But then successful finding of a suitor does not mean that this was the best option in the circumstances. Couldn’t the Company Law Board (CLB) have been more assertive and insisted on a seamless merger with whosoever was interested in Satyam?
More durable
A seamless merger, like wedlock, is more durable. On the other hand, acquisition of controlling interest in an existing company does not bring with it a permanent commitment which is perhaps why the income-tax law showers a merger with a confetti of tax benefits while remaining cold to takeover of shares.
There is a disquieting view that Tech Mahindra could indulge in order-stripping, as it were, if not in asset-stripping by neglecting the order book of Satyam and instead lapping up all orders for itself. In other words, Tech Mahindra could grow at the expense of Satyam parasite-like, the upshot of which could be a short shrift for both its (Satyam’s) employees and shareholders.
A seamless merger coupled with an injunction against step-motherly treatment of Satyam employees would have staved off this gloomy possibility.
The right to carry forward and set off the losses of the amalgamating company by the amalgamated company comes at a price — rehabilitation and restoration of the floundering amalgamating company.
Shouldn’t the CLB have taken a cue from the more enlightened provisions of the Income-Tax Act? A seamless merger ensures that both the employees and shareholders of the amalgamating company continue to partake in the business as if nothing has happened.
Now, Satyam shareholders would continue to be Satyam shareholders completely at the mercy of Tech Mahindra, which could feather its own nest and drop Satyam like a hot potato when its mission is accomplished.
To be sure, a seamless merger has its lacks. The exchange ratio is always a bone of contention and often a sore point with either of the two companies involved.
In a merger, the one that is down in the dumps is fobbed off with an unattractive exchange ratio.
Step-motherly treatment?
But this apart, it is merger that can guarantee rehabilitation of a company. Furthermore, Satyam’s liabilities, especially to the litigious American investors, are in the realm of speculation. Should they blow on Tech Mahindra’s face, it could dampen its enthusiasm for Satyam and the apprehensions of step-motherly treatment to Satyam and its stakeholders could become real. A seamless merger, on the other hand, would have extracted a commitment from the acquirer to stay through thick and thin.
A plausible reason for the CLB not pursuing this course, sagacious as it is, could have been the fear of delay in putting Satyam back on rails.
At the mention of merger, new suitors would have bristled, upped their ante and insisted on knowing the full implications of merger, including the liabilities that would devolve before sticking their neck out.
