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PRINT THIS PAGE Guide to mergers & acquisitions: Singapore19/07/2006. Source: Baker & McKenzie.
Baker & McKenzie look at the legal merger process in Singapore and the impact of the Companies (Amendment) Bill 2005, passed last year by the Singapore Parliament. Mergers and acquisitions are commonly carried out all over the world. Generally speaking, a merger consolidates two or more entities into a single economic unit whereas an acquisition is the outright purchase of either the assets or the shares of the target (i.e. the company whose shares or assets are to be acquired).
The motives for mergers and acquisitions are complex and varied as each transaction has its own unique economic terms and risk-sharing arrangements.
Common motives include the following:
A company may wish to expand by means of acquisition or merger rather than through continuous, natural growth, particularly if it wishes to enter into a new country or market where it previously had no presence, and where it does not have the manpower or experience to start its own business from scratch.
When two companies in the same industry are operating at a level below optimum, they may combine to achieve synergy and economies of scale. In addition, the combination of these two companies may lead to an increased market share, thus generating increased profitability. In some instances, the acquisition of a competitor reduces the economic threat to the acquirer.
At times of recession an acquisition or a merger may be used to restructure the companies involved so as to reduce workforce, output and/or other capacities. The redeployment of resources and the closing down of loss-making activities will help the companies to survive in a falling market.
Assets may be acquired at an undervalue from insolvent or financially troubled companies.
A company may raise capital by making a share-for-share acquisition of a company which comprises largely cash and other liquid assets. Conversely, the shareholders of the target may take this opportunity to invest in a company that they consider has potential for growth.
Some mergers and acquisitions are carried out not so much for any prospective economic advantage but because the management of a company wishes to assume ownership. Management buyouts have become quite popular in recent years.
An acquisition may be induced by the tax and accounting opportunities available.The target may have valuable tax attributes that the acquirer wishes to obtain, such as carry forwards of operating losses, tax credits or capital allowances. In other cases, the acquirer may have loss or tax credit carry forwards that it wishes to offset against the target.s income after the acquisition.
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Baker & McKenzie offers access to broad legal competence in a large number of countries all over the world. The firm employs over 3,000 lawyers at 61 offices in 35 different jurisdictions. Baker & McKenzie's size and international presence lend strength, both locally and globally. http://www.bakernet.com
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