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CS Professional · Corporate Restructuring, Valuation and Insolvency · Documentation - Merger and Amalgamation

Ganga Pharma Ltd plans to absorb Yamuna Labs Ltd. Before finalising the exchange ratio, Ganga's team reviews Yamuna's contracts, pending litigation, tax assessments and title to properties. What is the main purpose of this exercise in the merger process?

The review is due diligence. Its purpose is to verify the target's legal, financial and commercial position and uncover risks, so that valuation and scheme terms can be set or adjusted. It comes before the scheme is drafted and approved, and does not itself sanction or implement the merger.

  1. ATo obtain the Tribunal's sanction of the scheme
  2. BTo verify the target's legal, financial and commercial position so that risks are identified and the terms can be set or adjustedCorrect
  3. CTo fix the appointed date of the scheme
  4. DTo allot shares to the shareholders of Yamuna Labs

Explanation

Due diligence is an investigative review of the target before the deal terms are fixed. It identifies liabilities and issues that feed into valuation and the scheme terms. Sanction, appointed date and allotment are separate steps that follow later.

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